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What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co

Guillem Roig ()

No 14-482, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: In a common agency setting, where the common buyer undertakes cooperative investment with her suppliers, we obtain a direct link between the level of ex-post competition and investment which affects the market structure of the supply side of the market. We show that more competitive equilibria are associated with a larger and more homogeneous distribution of investment among active suppliers, and an equilibrium with no investment might occur when competition is mild. In our model, buyer's investment works as a mechanism to incentivize competition, and its effectiveness is positively related to the level of competition ex-post. In general, the equilibrium investment profile is lower than efficiency, and we surprisingly find that higher competitive markets may sustain a larger number of suppliers.

Keywords: cooperative investment; investment distribution; competition (search for similar items in EconPapers)
JEL-codes: C72 D43 D44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
Date: 2014-03-26
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