On Welfare Losses Due to Imperfect Competition

24 Pages Posted: 4 Mar 2014

Date Written: March 2014

Abstract

Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important - yet thus far unquantified - impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).

Suggested Citation

Ritz, Robert, On Welfare Losses Due to Imperfect Competition (March 2014). The Journal of Industrial Economics, Vol. 62, Issue 1, pp. 167-190, 2014, Available at SSRN: https://ssrn.com/abstract=2404131 or http://dx.doi.org/10.1111/joie.12038

Robert Ritz (Contact Author)

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

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