Monopolisation and Industry Structure
The aim of this paper is to provide empirically testable predictions regarding the relationship between market size and concentration. In a model of endogenous horizontal mergers, it is shown that concentrated outcomes cannot be supported in a free entry equilibrium in large exogenous sunk cost industries: the upper bound to concentration tends to zero as market size (relative to setup costs) tends to infinity. In contrast, arbitrarily concentrated outcomes may be sustained in endogenous sunk costs industries, no matter how large the market, and even in the absence of mergers; that is, the upper bound to concentrated does not decrease with market size. Using an equilibrium concept defined in the space of observable outcomes, it is shown that these predictions to not depend on the details of the extensive form of the game, even allowing for side payments between firms and endogenous product choice. The results complement those of Sutton (1991) on the stability of fragmented outcomes.
|Date of creation:||01 Oct 2000|
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- Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 531-53, October.
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- CHAMPSAUR, Paul & ROCHET, Jean-Charles, .
CORE Discussion Papers RP
-854, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
- Robinson, William T & Chiang, Jeongwen, 1996. "Are Sutton's Predictions Robust?: Empirical Insights into Advertising, R&D, and Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 389-408, December.
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