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How Many Firms Should Be Leaders? Beneficial Concentration Revisited

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  • Hiroaki Ino
  • Toshihiro Matsumura

Abstract

This article investigates the relationship between the Herfindahl–Hirschman Index (HHI) and welfare in multiple‐leader Stackelberg models. We formulate two long‐run models of free entry of followers; in the first (second) model, leaders select their output before (after) the entry of the followers. We find that in both models, in contrast to the short‐run models, the Stackelberg model yields a larger welfare and HHI than the Cournot model does regardless of the number of leaders; that is, beneficial concentration always occurs.

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  • Hiroaki Ino & Toshihiro Matsumura, 2012. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1323-1340, November.
    • Handle: RePEc:wly:iecrev:v:53:y:2012:i:4:p:1323-1340
    DOI: j.1468-2354.2012.00722.x
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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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