Efficiency in large markets with firm heterogeneity

Dhingra, Swati ORCID: 0000-0001-5468-3415 and Morrow, John (2017) Efficiency in large markets with firm heterogeneity. CEP Discussion Papers (CEPDP1502). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

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 marketdetermined 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:	Monograph (Discussion Paper)
Official URL:	http://cep.lse.ac.uk/
Additional Information:	© 2017 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HD Industries. Land use. Labor
JEL classification:	D - Microeconomics > D6 - Welfare Economics L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance
Date Deposited:	30 Jan 2018 16:06
Last Modified:	01 Nov 2024 04:56
Funders:	Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/86595

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