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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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