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On input market surplus and its relation to the downstream market game

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  • Leonardo J. Basso

Abstract

In order to analyze the welfare effects of price changes in input markets – following for example a price‐fixing conspiracy – economists have studied the relationship between the surplus measured in the input markets and the surplus in the output markets. The latest results hinge on simplifying assumptions, which are relaxed here by linking the input markets surplus question to another stream of literature, which characterizes functions that oligopolists collectively, yet unintentionally, maximize. It is shown that the area under the input demands is equal to the change in a function for which critical points coincide with the equilibria of the downstream game. A particular case of these functions is the exact potential function. Afin d’analyser les effets de bien‐être des changements de prix dans le marché des intrants ‐ à la suite par exemple d’une conspiration pour fixer les prix ‐ les économistes ont étudié la relation entre le surplus mesuré dans les marchés des intrants et le surplus dans les marchés des produits. Les derniers résultats dépendent de postulats simplificateurs qu’on relaxe ici en reliant la question du surplus dans les marchés des intrants avec un autre courant de la littérature spécialisée qui caractérise les fonctions que les oligopoleurs (collectivement mais sans en faire leur but avoué) maximisent. On montre que l’espace sous les courbes de demandes des intrants est égal au changement dans une fonction pour laquelle les points critiques coïncident avec les équilibres dans le jeu de marché en aval. Un cas particulier de ces fonctions est la fonction potentielle exacte.

Suggested Citation

  • Leonardo J. Basso, 2013. "On input market surplus and its relation to the downstream market game," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 266-281, February.
  • Handle: RePEc:wly:canjec:v:46:y:2013:i:1:p:266-281
    DOI: 10.1111/caje.12011
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    References listed on IDEAS

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