Computing Welfare Losses from Data Under Imperfect Competition with Heterogeneous Goods

34 Pages Posted: 17 Nov 2015

See all articles by Luis C. Corchón

Luis C. Corchón

Charles III University of Madrid - Department of Economics

Galina Zudenkova

TU Dortmund University; Centre for Economic Policy Research (CEPR)

Date Written: October 31, 2008

Abstract

We study the percentage of welfare losses (PWL) yielded by imperfect competition under product differentiation. When demand is linear, if prices, outputs, costs and the number of firms can be observed, PWL is arbitrary in both Cournot and Bertrand equilibria. If in addition, the elasticity of demand (resp. cross elasticity of demand) is known, we can calculate PWL in Cournot (resp. Bertrand) equilibrium. When demand is isoelastic and there are many firms, PWL can be computed from prices, outputs, costs and the number of .rms. In all these cases we find that price-marginal cost margins and demand elasticities may influence PWL in a counterintuitive way. We also provide conditions under which PWL increases or decreases with concentration.

Keywords: Welfare losses, Product differentiation, Cournot equilibrium, Bertrand equilibrium

JEL Classification: D61, L11, L13, L50

Suggested Citation

Corchón Diaz, Luis Carlos and Zudenkova, Galina, Computing Welfare Losses from Data Under Imperfect Competition with Heterogeneous Goods (October 31, 2008). Available at SSRN: https://ssrn.com/abstract=2691113 or http://dx.doi.org/10.2139/ssrn.2691113

Luis Carlos Corchón Diaz (Contact Author)

Charles III University of Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain

Galina Zudenkova

TU Dortmund University ( email )

Friedrich-Wöhler-Weg 6
Dortmund, 44227
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
48
Abstract Views
473
PlumX Metrics