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A General Theory of Endogenous Market Structures

Author

Listed:
  • Paolo Bertoletti

    (Department of Economics and Management, University of Pavia)

  • Federico Etro

    (Department of Economics, University of Venice Ca' Foscari)

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.

Suggested Citation

  • Paolo Bertoletti & Federico Etro, 2014. "A General Theory of Endogenous Market Structures," DEM Working Papers Series 081, University of Pavia, Department of Economics and Management.
    • Handle: RePEc:pav:demwpp:demwp0081
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    Cited by:

    1. Poutineau, Jean-Christophe & Vermandel, Gauthier, 2015. "Financial frictions and the extensive margin of activity," Research in Economics, Elsevier, vol. 69(4), pages 525-554.
    2. Claude d’Aspremont & Rodolphe Dos Santos Ferreira, 2016. "Oligopolistic vs. monopolistic competition: Do intersectoral effects matter?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 299-324, June.
    3. Bondarev, Anton & Dato, Prudence & Krysiak, Frank C., 2021. "Green Technology Transitions with an Endogenous Market Structure," Working papers 2021/07, Faculty of Business and Economics - University of Basel.
    4. Boucekkine, Raouf & Latzer, Hélène & Parenti, Mathieu, 2017. "Variable markups in the long-run: A generalization of preferences in growth models," Journal of Mathematical Economics, Elsevier, vol. 68(C), pages 80-86.
    5. de Pinto Marco & Goerke Laszlo, 2019. "Efficiency Wages in Cournot-Oligopoly," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(4), pages 1-13, October.
    6. Etro, Federico & Rossi, Lorenza, 2015. "Optimal monetary policy under Calvo pricing with Bertrand competition," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 423-440.
    7. Jung, Jae Wook & Simonovska, Ina & Weinberger, Ariel, 2019. "Exporter heterogeneity and price discrimination: A quantitative view," Journal of International Economics, Elsevier, vol. 116(C), pages 103-124.
    8. Marco de Pinto & Laszlo Goerke, 2022. "Cost uncertainty in an oligopoly with endogenous entry," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 927-948, October.
    9. Jeroen van Raak & Erik Peek & Roger Meuwissen & Caren Schelleman, 2020. "The effect of audit market structure on audit quality and audit pricing in the private‐client market," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(3-4), pages 456-488, March.
    10. Marco de Pinto & Laszlo Goerke & Alberto Palermo, 2024. "Business Stealing + Economic Rent = Insufficient Entry? An Integrative Framework," IAAEU Discussion Papers 202402, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    11. Brander, James A. & Spencer, Barbara J., 2015. "Intra-industry trade with Bertrand and Cournot oligopoly: The role of endogenous horizontal product differentiation," Research in Economics, Elsevier, vol. 69(2), pages 157-165.
    12. Meunier, Guy & Ponssard, Jean-Pierre, 2020. "Optimal policy and network effects for the deployment of zero emission vehicles," European Economic Review, Elsevier, vol. 126(C).
    13. Eric Langlais & Andreea Cosnita-Langlais, 2022. "Endogenous market structures, product liability, and the scope of product differentiation," EconomiX Working Papers 2022-18, University of Paris Nanterre, EconomiX.
    14. Chin-Sheng Chen, 2017. "Endogenous Market Structure and Technology Licensing," The Japanese Economic Review, Japanese Economic Association, vol. 68(1), pages 115-130, March.
    15. Etro, Federico & Rossi, Lorenza, 2015. "New-Keynesian Phillips curve with Bertrand competition and endogenous entry," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 318-340.
    16. Goerke, Laszlo, 2020. "A political economy perspective on horizontal FDI in a dynamic Cournot-oligopoly with endogenous entry," European Journal of Political Economy, Elsevier, vol. 63(C).
    17. Gerasimos T. Soldatos, 2021. "A model of market competition as a prize contest or a model of strife for market domination," SN Business & Economics, Springer, vol. 1(1), pages 1-9, January.
    18. Dia, Enzo & VanHoose, David, 2018. "Fixed costs and capital regulation: Impacts on the structure of banking markets and aggregate loan quality," Journal of Financial Stability, Elsevier, vol. 36(C), pages 53-65.

    More about this item

    Keywords

    Monopolistic Competition; Imperfect Competition; Elasticity of Substitution; Free Entry;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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