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Looking at the Cost Side of “Monopoly”[Note 1. We are grateful to Keith Cowling, Allan J. Daskin, ...]
Author(s) -
Aiginger Karl,
Pfaffermayr Michael
Publication year - 1997
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00048
Subject(s) - deadweight loss , oligopoly , economic surplus , inefficiency , monopoly , economics , welfare , homogeneous , imperfect , imperfect competition , microeconomics , consumer welfare , mathematics , market economy , linguistics , philosophy , combinatorics
Welfare loss under oligopoly is defined as that part of consumer surplus which is lost and not regained by higher profits. In a model with asymmetric firms, this implies that the total welfare loss consists of the deadweight loss triangle plus a cost side inefficiency effect, due to the fact that in imperfect markets not all firms utilize the lowest cost technique. Using a flexible CV‐model we calculate these effects empirically for two relatively homogeneous industries (pulp/paper and cement). The deadweight loss triangles are shown to be smaller than the cost difference effect (“the staircase”) for these industries.