Peter Eso
Reader in Economics
Deputy Head of Department
01865 281483
-
-
Dynamic contracting: An irrelevance theorem
January 2017|Journal article|Theoretical Economics
-
Department of Economics Discussion Paper Series
Competition for Scarce Resources
October 2007|Working paper|Department of Economics Discussion Paper SeriesWe show that the efficient allocation of production capacity can turn a competitive industry and downstream market into an imperfectly competitive one. Even though downstream firms have symmetric production technologies, the downstream industry structure will be symmmetric only if capacity is sufficiently scarce. Otherwise it will be asymmetric, with one large fat capacity-hoarding firm and a fringe of smaller lean and fit firms, so that Tobin`s Q varies inversely with firm size. This is so even if the number of firms is infinitely large. As demand or input quantity varies, the industry may switch between symmetric and asymmetric phases, generating predictions for firm size and costs across the business cycle. Surprisingly, an increase in available capacity resulting in such a switch can cause a reduction in total output and consumer surplus.Multiproduct Firms, Firm Size Distribution, Trade Liberalization, Size Discount, Firm Heterogeneity, Productivity