CentER Discussion Paper No. 2000-104
37 Pages Posted: 5 Dec 2000
Date Written: October 2000
Competition has been modelled in the literature in a number of ways. What do these different parametrizations of competition have in common? For instance, it turns out that it is not always the case that a rise in competition reduces price cost margins, industry wide profits or concentration. All parametrizations of competition, considered here, have two features in common. First, the reallocation effect: a rise in competition raises the profits of a firm relative to the profits of a less efficient firm. Second, a rise in competition reduces the profits of the least efficient firm active in the industry.
Keywords: competition, measures of competition, concentration, price cost margin, profits
JEL Classification: D43, L13
Suggested Citation: Suggested Citation