Competition Can Harm Consumers

8 Pages Posted: 22 Aug 2008

See all articles by Simon Cowan

Simon Cowan

University of Oxford - Department of Economics

Xiangkang Yin

Deakin University; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Abstract

Duopolists selling differentiated products can generate less consumer surplus than a monopoly selling one of the products. In a Hotelling-type model where a monopoly supplies more than half of potential consumers, but not all, entry by a rival leads to a duopoly price that is higher than the monopoly price. Consumers in aggregate will be made worse off by such entry when the effect of the price increase outweighs the benefit of extra variety. When consumers have continuous demand functions and firms use two-part tariffs, duopoly can also result in lower aggregate consumer surplus than monopoly.

Suggested Citation

Cowan, Simon G.B. and Yin, Xiangkang, Competition Can Harm Consumers. Australian Economic Papers, Vol. 47, Issue 3, pp. 264-271, September 2008. Available at SSRN: https://ssrn.com/abstract=1242505 or http://dx.doi.org/10.1111/j.1467-8454.2008.00347.x

Simon G.B. Cowan (Contact Author)

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Xiangkang Yin

Deakin University ( email )

Melbourne, Victoria
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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