Welfare in differentiated oligopolies with more than two firms

Robert C. Schmidt

International Journal of Industrial Organization, 2009, vol. 27, issue 4, pages 501-507

Abstract: Excessive differentiation in the quality or location dimension in order to soften price competition is a well-established conclusion concerning duopolistic markets. This has inspired authors to discuss policy measures that may improve welfare in a differentiated market. In the present paper, a general welfare analysis is conducted for a varying number of firms. It is shown that outcomes are almost optimal when three or more competitors are in the market. In light of this, a laissez-faire policy should be adopted. For a range of entry costs, market outcomes entail insufficient entry. Therefore, a subsidy to entry may improve welfare.

Keywords: Horizontal; differentiation; Vertical; differentiation; Quality; Over; differentiation; Entry; subsidy (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:indorg:v:27:y:2009:i:4:p:501-507

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