Product Differentiation and Oligopoly: A Network Approach

Bruno Pellegrino

No 10244, CESifo Working Paper Series from CESifo

Abstract: This paper develops a theory of oligopoly and markups in general equilibrium. Firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply. My model embeds a novel, highly tractable and scalable demand system (GHL) that can be estimated for the universe of public corporations in the USA, using publicly-available data. Using the model, I compute firm-level markups and decompose them into: 1) a new measure of firm productivity that accounts for product quality; 2) a metric of network centrality, which captures the extent of competition from substitute products. I estimate that, in 2019, public corporations produced consumer surplus in excess of 10 US$ trillions (against $3 trillions of profits). Oligopoly lowers total surplus by 11.5% and depresses consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively). These results should be interpreted with care due to data limitations.

Keywords: competition; concentration; general equilibrium; market power; markups; mergers; monopoly; networks; oligopoly; text analysis (search for similar items in EconPapers)
JEL-codes: D20 D40 D60 E20 L10 O40 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-eff, nep-ind, nep-net and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10244

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