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Endogenous Market Structures and Welfare

Federico Etro

Ca Foscari University of Venice

July 1, 2012

University of Venice at Ca’ Foscari Working Paper No. 12/WP/2012

I characterize microfounded endogenous market structures with Bertrand and Cournot competition and perform welfare analysis generalizing the Mankiw-Whinston condition for excess entry. The impact of market leaders on welfare is reconsidered, with a number of policy implications about strategic investments, vertical contracts, bundling, mergers and more. The neutrality of consumer surplus holds only when utility is homothetic. Under quantity competition, aggressive (accommodating) leaders increase consumer surplus if the elasticity of utility is decreasing (increasing) in consumption. This provides general rules to evaluate mergers and abuse of dominance issues in antitrust policy.

Number of Pages in PDF File: 19

Keywords: endogenous entry, oligopoly, welfare

JEL Classification: L1

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Date posted: July 10, 2012  

Suggested Citation

Etro, Federico, Endogenous Market Structures and Welfare (July 1, 2012). University of Venice at Ca’ Foscari Working Paper No. 12/WP/2012. Available at SSRN: http://ssrn.com/abstract=2103079 or http://dx.doi.org/10.2139/ssrn.2103079

Contact Information

Federico Etro (Contact Author)
Ca Foscari University of Venice ( email )
Dorsoduro 3246
Venice, Veneto 30123
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