The impact of competition on prices with numerous firms

• 成果类型: Article
• 署名作者: Gabaix, Xavier; Laibson, David; Li, Deyuan; Li, Hongyi; Resnick, Sidney; de Vries, Casper G.
• 署名单位: Centre for Economic Policy Research - UK; National Bureau of Economic Research; Harvard University; Fudan University; University of New South Wales Sydney; Erasmus University Rotterdam - Excl Erasmus MC; Erasmus University Rotterdam; Tinbergen Institute; Chapman University System; Chapman University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2016.04.001
• 发表日期: 2016
• 页码: 1-24
• 关键词: Extreme value theory; imperfect competition; monopolistic competition; Random utility models; Limit pricing

摘要

This paper describes a mechanism that sustains high markups, even in markets with homogenous goods and many competing firms. We show that random utility models with idiosyncratic taste shocks driven by standard noise distributions produce, in large markets, robustly high equilibrium markups that are insensitive to the degree of competition. For example, with Gaussian noise and n firms, markups are asymptotically proportional to 1/root In n; consequently, a hundred-fold increase inn, from 10 to 1000 competing firms, only halves the equilibrium markup. The elasticity of the markup with respect to n asymptotically equals the distribution's tail exponent from extreme value theory. Only noise distributions with very thin tails have negative asymptotic markup elasticities. (C) 2016 Elsevier Inc. All rights reserved.