|Publication Date:||December 2000|
|Keyword(s):||Competition, Concentration, Measures Of Competition, Price Cost Margin, Profits|
|Programme Areas:||Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2636|
Competition has been modelled in economic literature in a number of ways. What do these different parameterizations of competition have in common? For instance, it turns out that it is not always the case that a rise in competition reduces price cost margins, industry wide profits or concentration. All parameterizations of competition, considered here, have two features in common. First, the reallocation effect: a rise in competition raises the profits of a firm relative to the profits of a less efficient firm. Second, a rise in competition reduces the profits of the least efficient firm active in the industry.