Competition for Scarce Resources

Volker Nocke, Peter Eso () and Lucy White

No 365, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: We show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large fat capacity-hoarding firm and a fringe of smaller lean and fit firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus.

Keywords: Multiproduct Firms; Firm Size Distribution; Trade Liberalization; Size Discount; Firm Heterogeneity; Productivity (search for similar items in EconPapers)
JEL-codes: F12 F15 L11 L25 (search for similar items in EconPapers)
Date: 2007-10-01
New Economics Papers: this item is included in nep-com, nep-cse, nep-int and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Competition for scarce resources (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:365

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