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Competition for Scarce Resources

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  • Volker Nocke
  • Peter EsoLucy White

Abstract

We show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large fat capacity-hoarding firm and a fringe of smaller lean and fit firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus.

Suggested Citation

  • Volker Nocke & Peter EsoLucy White, 2007. "Competition for Scarce Resources," Economics Series Working Papers 365, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:365
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    Cited by:

    1. Bård Harstad, 2010. "Buy Coal! Deposit Markets Prevent Carbon Leakage," CESifo Working Paper Series 2992, CESifo Group Munich.
    2. M von der Fehr, Nils-Henrik, 2011. "Leader, Or Just Dominant? The Dominant-Firm Model Revisited," Memorandum 15/2010, Oslo University, Department of Economics.
    3. Noriaki Matsushima & Laixun Zhao, 2010. "Multimarket linkages, buyer power, and the productivity puzzle," ISER Discussion Paper 0797, Institute of Social and Economic Research, Osaka University.
    4. repec:bla:randje:v:48:y:2017:i:4:p:906-926 is not listed on IDEAS
    5. Roberto Burguet & Jozsef Sakovics, 2016. "Bidding for input in oligopoly," ESE Discussion Papers 266, Edinburgh School of Economics, University of Edinburgh.
    6. Simon Loertscher & Markus Reisinger, 2014. "Market structure and the competitive effects of vertical integration," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 471-494, September.
    7. Jin‐Hyuk Kim, 2014. "Employee Poaching: Why It Can Be Predatory," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 35(5), pages 309-317, July.
    8. Nicolas Gruyer & Kevin Guittet, 2008. "A model of airport slot allocation with posted prices," Economics Working Papers 05, LEEA (air transport economics laboratory), ENAC (french national civil aviation school).
    9. Simon Loertscher & Leslie Marx, 2014. "An Oligopoly Model for Analyzing and Evaluating (Re)-Assignments of Spectrum Licenses," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 45(3), pages 245-273, November.
    10. Nie, Pu-yan & Chen, You-hua, 2012. "Duopoly competitions with capacity constrained input," Economic Modelling, Elsevier, vol. 29(5), pages 1715-1721.
    11. Pu-yan Nie, 2014. "Effects of capacity constraints on mixed duopoly," Journal of Economics, Springer, vol. 112(3), pages 283-294, July.
    12. Yong-Bo Wang & Jin-Ray Lu, 2016. "A Supply-Lock Competitive Market for Investable Products," Asian Development Policy Review, Asian Economic and Social Society, vol. 4(4), pages 127-133, December.
    13. repec:eee:indorg:v:53:y:2017:i:c:p:63-98 is not listed on IDEAS
    14. Péter Eső & Volker Nocke & Lucy White, 2010. "Competition for scarce resources," RAND Journal of Economics, RAND Corporation, vol. 41(3), pages 524-548.
    15. Huettel, Silke & Margarian, Anne & von Schlippenbach, Vanessa, 2010. "Regional asymmetries in farm size," 114th Seminar, April 15-16, 2010, Berlin, Germany 62046, European Association of Agricultural Economists.
    16. Roberto Burguet & József Sákovics, 2017. "Competitive foreclosure," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 906-926, December.
    17. Stefan Kersting & JProf. Silke Huettel & Prof. Martin Odening, 2013. "Structural change in agriculture – an equilibrium approach," EcoMod2013 5300, EcoMod.
    18. Zenger, Hans, 2013. "Competition and collusion with fixed output," Economics Letters, Elsevier, vol. 120(2), pages 259-261.

    More about this item

    Keywords

    Multiproduct Firms; Firm Size Distribution; Trade Liberalization; Size Discount; Firm Heterogeneity; Productivity;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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