DP9511 Aggregate Oligopoly Games with Entry

Author(s): Simon P Anderson, Nisvan Erkal, Daniel Piccinin
Publication Date: June 2013
Keyword(s): aggregative games, contests, Cournot, entry, IIA property, leadership, Logit/CES, mergers, monopolistic competition, oligopoly theory, R&D, strategic substitutes and complements
JEL(s): D43, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9511

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.