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Competing for the Quiet Life: An Organizational Theory of Market Structure
We develop an incomplete-contracts model of endogenous market structure for a homogeneous-good industry. A large number of identical incentive-constrained producers each decide whether to stand alone as price-taking competitors, or to horizontally integrate with others by selling their assets to profit-motivated professional managers, who then Cournot compete in the product market. Despite the absence of significant technological non-convexities, the equilibrium market structure is typically an oligopoly: contracting imperfections can be a distinct source of market power. Unlike standard endogenous entry models, concentration may increase with the size of the market. We discuss implications for competition policy.
Date:
29 November 2024, 14:15
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Seminar Room G
Speaker:
Andrew Newman (Boston University)
Organising department:
Department of Economics
Part of:
Nuffield Economic Theory Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Edward Valenzano
