Competition, Cost Innovation, and X-inefficiency in Experimental Markets

Andrew Smyth

Review of Industrial Organization, 2016, vol. 48, issue 3, No 5, 307-331

Abstract: Abstract This paper examines the relationship between competition, cost innovation, and x-inefficiency in experimental markets. In the lab, oligopolists make closer-to-optimal cost innovation expenditures than do monopolists, which result in lower x-inefficiency in oligopoly than in monopoly. Oligopolies also increase total surplus relative to monopoly, and consumer surplus makes up a larger portion of total surplus in oligopoly than monopoly. The data illustrate how x-inefficiency affects surplus dynamically and suggest price as a mechanism by which competitive pressure increases cost efficiency.

Keywords: X-inefficiency; Cost innovation; Experimental economics (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s11151-015-9487-7

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