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Market Structures with Multi-product Firms: Welfare Analysis and Policy Implications

Market Structures with Multi-product Firms: Welfare Analysis and Policy Implications In the real world firms operate in more than one market and consequently can exploit scope economies and/or demand complementarities. Introducing multi-product firms in the picture makes the standard assumption that more competition is always beneficial for social welfare less clear-cut. In this paper we show that a “concentrated” structure can be socially preferable in the presence of scope economies, whereas a “fragmented” structure has to be preferred when products are close substitutes. We also identify either analytically or numerically the socially optimal market structure when aggregate output (and then consumer surplus) or total welfare are used as ranking criteria. The analysis is useful for discussing which market structure should be favored by policy makers aimed at introducing competition in sectors which were previously monopolized by state-owned firms. To that respect, our findings point out that not only the level (number of firms) but also the form (type of firms) of competition matters. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png "Journal of Industry, Competition and Trade" Springer Journals

Market Structures with Multi-product Firms: Welfare Analysis and Policy Implications

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References (21)

Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Economics; Industrial Organization; Economic Policy; R & D/Technology Policy; European Integration; Microeconomics; International Economics
ISSN
1566-1679
eISSN
1573-7012
DOI
10.1023/A:1012826530736
Publisher site
See Article on Publisher Site

Abstract

In the real world firms operate in more than one market and consequently can exploit scope economies and/or demand complementarities. Introducing multi-product firms in the picture makes the standard assumption that more competition is always beneficial for social welfare less clear-cut. In this paper we show that a “concentrated” structure can be socially preferable in the presence of scope economies, whereas a “fragmented” structure has to be preferred when products are close substitutes. We also identify either analytically or numerically the socially optimal market structure when aggregate output (and then consumer surplus) or total welfare are used as ranking criteria. The analysis is useful for discussing which market structure should be favored by policy makers aimed at introducing competition in sectors which were previously monopolized by state-owned firms. To that respect, our findings point out that not only the level (number of firms) but also the form (type of firms) of competition matters.

Journal

"Journal of Industry, Competition and Trade" – Springer Journals

Published: Oct 5, 2004

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