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Investments in Oligopoly: Welfare Effects and Tests for Predation

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  • Schwartz, Marius

Abstract

This paper analyzes, in a simple duopoly model, the welfare effects of investments that reduce marginal cost and, thus, lead the investing firm to expand output and the rival to contract or exit altogether. It shows why welfare can decrease even if price falls and even if the investment is costless. Some sufficient conditions are given for welfare to increase, conditions based on observable variables such as prices and outputs. The model is also used to examine the welfare properties of the test for predatory innovation proposed by J. A. Ordover and R. D. Willig (1981). Copyright 1989 by Royal Economic Society.

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  • Schwartz, Marius, 1989. "Investments in Oligopoly: Welfare Effects and Tests for Predation," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 698-719, October.
    • Handle: RePEc:oup:oxecpp:v:41:y:1989:i:4:p:698-719
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    Cited by:

    1. Justin P. Johnson & Andrew Rhodes, 2021. "Multiproduct mergers and quality competition," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 633-661, September.
    2. Chrysovalantou Milliou & Joel Sandonis, 2020. "Vertical foreign direct investment: Make, buy, and sell," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 884-912, August.
    3. Jeffrey Church & Roger Ware, 1998. "Abuse of Dominance under the 1986 Canadian Competition Act," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 13(1), pages 85-129, April.
    4. Masili, Gustavo, 2006. "Auction with aftermarket for budget constrained bidders," MPRA Paper 2134, University Library of Munich, Germany.

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