Working Paper: CEPR ID: DP9511
Authors: Simon P. Anderson; Nisvan Erkal; Daniel Piccinin
Abstract: We use cumulative reaction functions to compare long-run market structures in aggregative oligopoly games. We first compile an IO toolkit for aggregative games. We show strong neutrality properties across market structures. The aggregator stays the same, despite changes in the number of firms and their actions. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregator alone, and that the Bertrand pricing game is aggregative. We link together the following results: merging parties' profits fall but consumer surplus is unchanged, Stackelberg leadership raises welfare, monopolistic competition is the market structure with the highest surplus.
Keywords: aggregative games; contests; entry; IIA property; leadership; logit; CES; mergers; monopolistic competition; oligopoly theory
JEL Codes: D43; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mergers (G34) | Consumer Surplus (D11) |
| Mergers (G34) | Merged Parties' Profits (G34) |
| Stackelberg Leadership (D43) | Market Welfare (D69) |
| Monopolistic Competition (L13) | Consumer Surplus (D11) |
| Free Entry (Z38) | Neutralization of Short-Run Effects on the Aggregator (E19) |
| Changes in Market Structure (D49) | Overall Welfare (I31) |