skip to content

Faculty of Economics

Journal Cover

Ritz, R. A.

On welfare losses due to imperfect competition

Journal of Industrial Economics

Vol. 62(1) pp. 167-190 (2013)

Abstract: Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important—yet thus far unquantified—impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).

Keywords: Delegation, forward trading, managerial incentives, market structure, welfare losses.

JEL Codes: D43, D61, L13, L22, L41

Author links: Robert Ritz  

Publisher's Link:

Papers and Publications

Recent Publications

Carvalho, V. M., Nirei, M., Saito, Y. U. and Tahbaz-Salehi, A. Supply Chain Disruptions: Evidence from the Great East Japan Earthquake Quarterly Journal of Economics, forthcoming [2021]

Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle American Economic Review [2019]

Biroli, P., Boneva, T., Raja, A. and Rauh, C. Parental Beliefs About Returns to Child Health Investments Journal of Econometrics [2020]

Dziubinski, M., Goyal, S. and Minarsch, D. E. N. The Strategy of Conquest Journal of Economic Theory, forthcoming [2020]