Discussion paper Competition Policy

DP2636 Competition

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.


Boone, J (2000), ‘DP2636 Competition‘, CEPR Discussion Paper No. 2636. CEPR Press, Paris & London. https://cepr.org/publications/dp2636