Thursday, November 13, 2014

A General Theory of Endogenous Market Structures

Federico Etro (Department of Economics, University Of Venice Ca Foscari) and Paolo Bertoletti (Department of Economics, University Of Pavia) offer A General Theory of Endogenous Market Structures.

ABSTRACT: We provide a unified approach to imperfect (monopolistic, Bertrand and Cournot) competition equilibria with demand functions derived from symmetric preferences over a large but finite number of goods. The equilibrium markups depend on the Morishima Elasticity of Substitution/Complementarity between goods, and can be derived directly from the utility functions and ranked unambiguously. We characterize the endogenous market structures, their dependence on market size, income and firms’ productivity and compare them with the optimal allocations. Finally, we apply our results to the case of preferences such as Generalized Leontief, Generalized linear and Generalized quadratic that we introduce in the literature on imperfect competition.

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