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Efficiency in large markets with firm heterogeneity

Dhingra, Swati and Morrow, John (2017) Efficiency in large markets with firm heterogeneity. Research in Economics. ISSN 1090-9443

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Identification Number: 10.1016/j.rie.2017.10.004

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.

Item Type: Article
Official URL: https://www.journals.elsevier.com/research-in-econ...
Additional Information: © 2017 University of Venice © CC BY-NC-ND
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HD Industries. Land use. Labor
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
H Social Sciences > HF Commerce
JEL classification: D - Microeconomics > D6 - Welfare Economics
F - International Economics > F1 - Trade
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 08 Nov 2017 12:40
Last Modified: 14 Apr 2019 23:00
URI: http://eprints.lse.ac.uk/id/eprint/85157

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