Endogenous Market Structures and Welfare

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

19 Pages Posted: 10 Jul 2012  

Federico Etro

Ca Foscari University of Venice

Date Written: July 1, 2012

Abstract

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.

Keywords: endogenous entry, oligopoly, welfare

JEL Classification: L1

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: https://ssrn.com/abstract=2103079 or http://dx.doi.org/10.2139/ssrn.2103079

Federico Etro (Contact Author)

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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