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    Efficiency in large markets with firm heterogeneity

    Dhingra, S. and Morrow, John (2017) Efficiency in large markets with firm heterogeneity. Research in Economics 71 (4), pp. 718-728. ISSN 1090-9443.

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    Abstract

    Empirical work has drawn attention to the high degree of productivity differences within industries, and its role in resource allocation. In a benchmark monopolistically competitive economy, productivity differences introduce two new margins for allocational inefficiency. When markups vary across firms, laissez faire markets do not select the right distribution of firms and the market-determined quantities are inefficient. We show that these considerations determine when increased competition from market expansion takes the economy closer to the socially efficient allocation of resources. As market size grow large, differences in market power across firms converge and the market allocation approaches the efficient allocation of an economy with constant markups.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Efficiency, Productivity, Limit theorem, Market expansion, Competition
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Research Centre: Applied Macroeconomics, Birkbeck Centre for
    Depositing User: John Morrow
    Date Deposited: 17 Oct 2017 10:31
    Last Modified: 15 Apr 2019 00:10
    URI: http://eprints.bbk.ac.uk/id/eprint/20079

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