A note on the adverse effect of competition on consumers

Dinda, Soumyananda and Mukherjee, Arijit (2010): A note on the adverse effect of competition on consumers. Published in: Journal of Public Economic Theory , Vol. 16, No. 1 (February 2014): pp. 157-163.

Abstract

It is usually believed that higher competition, implying more active firms, benefits consumers. We show that this may not be the case in an industry with asymmetric cost firms. A rise in the number of more cost inefficient firms makes the consumers worse-off in the presence of a welfare maximizing tax/subsidy policy. A rise in the number of more cost inefficient firms also reduces social welfare.

• Item Type: MPRA Paper
• Language: English
• Keywords: Competition; Consumer welfare; Cost asymmetry; Tax
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets; L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General

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