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Oligopoly Pricing: The Role of Firm Size and Number

Author

Listed:
  • Iwan Bos

    (Department of Organisation, Strategy and Entrepreneurship, Maastricht University)

  • Marco A. Marini

    (Department of Social Sciences and Economics, Sapienza University of Rome)

Abstract

This paper examines a homogeneous-good Bertrand-Edgeworth oligopoly model to explore the role of firm size and number in pricing. We consider the price impact of merger, breakup, investment, divestment, entry, and exit. A merger leads to higher prices only when it increases the size of the largest seller and industry capacity is neither too big nor too small post-merger. Similarly, breaking-up a firm only leads to lower prices when it concerns the biggest producer and aggregate capacity is within an intermediate range. Investment and entry (weakly) reduce prices, whereas divestment and exit yield (weakly) higher prices. Taken together, these findings suggest that size matters more than number in the determination of oligopoly prices.

Suggested Citation

  • Iwan Bos & Marco A. Marini, 2022. "Oligopoly Pricing: The Role of Firm Size and Number," Working Papers 11/22, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:11/22
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    More about this item

    Keywords

    Bertrand-Edgeworth Competition; Edgeworth Price Cycle; Firm Size Distribution; Oligopoly Pricing; Price Dispersion.;
    All these keywords.

    JEL classification:

    • 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
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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