EconPapers    
Economics at your fingertips  
 

Efficiency in large markets with firm heterogeneity

Swati Dhingra and John Morrow ()

Research in Economics, 2017, vol. 71, issue 4, 718-728

Abstract: Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.

Keywords: Efficiency; Productivity; Limit theorem; Market expansion; Competition (search for similar items in EconPapers)
JEL-codes: F1 L1 D6 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1090944317302673
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Efficiency in Large markets with Firm Heterogeneity (2017) Downloads
Working Paper: Efficiency in large markets with firm heterogeneity (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reecon:v:71:y:2017:i:4:p:718-728

Access Statistics for this article

Research in Economics is currently edited by Federico Etro

More articles in Research in Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-06-18
Handle: RePEc:eee:reecon:v:71:y:2017:i:4:p:718-728