IDEAS home Printed from https://ideas.repec.org/p/lvl/laeccr/9714.html

Firm Size Inequality and Market Power

Author

Listed:
  • Barla, Philippe

Abstract

In this paper, we reexamine the relationship between performance and concentration in the light of modern oligopoly theory. More specifically, we examine the link that exists between firm size inequality (FSI) and market power. Traditional theory predicts that market power should be higher in markets where FSI is high. Using a model with capacity constraints and endogenous conduct, we show that the market power-FSI relationship is in fact more complex. We show that two effects are at play leading to a U-shaped relationship between market power and FSI. Another implication of this model is that prices should be more unstable in markets where firms are asymmetric in size. In the second part of this paper, we test these predictions on data for the U.S. airline industry. We estimate a fare equation for a panel of 400 routes. We first show that using traditional measures of market concentration such as the Herfindahl is restrictive. We then show that there is indeed a U- shaped relationship between FSI and Prices holding costs constant and that prices are more unstable in markets where FSI is high.

Suggested Citation

  • Barla, Philippe, 1997. "Firm Size Inequality and Market Power," Cahiers de recherche 9714, Université Laval - Département d'économique.
    • Handle: RePEc:lvl:laeccr:9714
    as

    Download full text from publisher

    File URL: http://www.ecn.ulaval.ca/w3/recherche/cahiers/1997/9714.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    ;
    ;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lvl:laeccr:9714. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Manuel Paradis (email available below). General contact details of provider: https://edirc.repec.org/data/delvlca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.