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What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co

  • Roig, Guillem

In a common agency setting, where the common buyer undertakes cooperative investment with her suppliers, we obtain a direct link between the level of ex-post competition and investment which affects the market structure of the supply side of the market. We show that more competitive equilibria are associated with a larger and more homogeneous distribution of investment among active suppliers, and an equilibrium with no investment might occur when competition is mild. In our model, buyer's investment works as a mechanism to incentivize competition, and its effectiveness is positively related to the level of competition ex-post. In general, the equilibrium investment profile is lower than efficiency, and we surprisingly find that higher competitive markets may sustain a larger number of suppliers.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 14-482.

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Date of creation: 26 Mar 2014
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Handle: RePEc:tse:wpaper:28043
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  1. Tommaso Valletti, 2000. "Switching Costs in Vertically Related Markets," Review of Industrial Organization, Springer, vol. 17(4), pages 395-409, December.
  2. Roig, Guillem, 2014. "Competition and the Hold‐U p Problem: a Setting with Non‐exclusive Contracts," TSE Working Papers 14-481, Toulouse School of Economics (TSE).
  3. Hori Kazumi, 2006. "Inefficiency in a Bilateral Trading Problem with Cooperative Investment," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-9, July.
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