The Theory of Endogenous Market Structures

Abstract

Abstract. Most market structures are neither perfectly or monopolistically competitive: they are characterized by a few large firms that are engaged in strategic interactions in their production and investment decisions and whose number is endogenous. The theory of endogenous market structures analyzes markets in partial and general equilibrium where strategies affect entry and entry affects strategies, and exogenous primitive conditions on technology and preferences affect the equilibrium. We discuss applications to industrial organization, international trade, business cycle theory, international finance, growth and implications for welfare and for competition, trade, fiscal and monetary policy.

A Supply-Lock Competitive Market for Investable Products

“…Other studies have analyzed market structure of trading assets, focusing on the impacts of market structure on prices, profits, and firm policies (e.g., (Eső et al, 2010;Wang and Zheng, 2012;Erto, 2013;Ferrer, 2013;Balmaceda et al, 2014;Dionne and Santugini, 2014)). Guriev and Kvasov (2009) develop a model for imperfect competition in financial markets with an endogenous capital structure for analyzing firms' financing decisions.…”

“…Eső et al (2010) analyze the behavior of an industry requiring scarce input, in which firms compete to purchase capacity in an upstream market, showing that industry structure is symmetric if input capacity is sufficiently sparse. Erto (2013) proposes that most markets are characterized by a small number of large firms that utilize strategic behavior in their decisions related to investments and production. By considering the impact of market structure on firm profits, Wang and Zheng (2012) suggest that production elasticity has less of an influence than demand elasticity in a perfect competition, and that a monopoly makes the impact of demand and production elasticity more obvious on the firm's profits in an imperfect competition market.…”

Intra-Industry Trade with Bertrand and Cournot Oligopoly: The Role of Endogenous Horizontal Product Differentiation

“…More complete general equilibrium models of oligopolistic trade includeLahiri and Ono (1995) andNeary (2009). See also Section 4.1 ofEtro (2014) which outlines a model structure that nests perfect competition, monopolistic competition and oligopoly in a general equilibrium framework with international trade, andBernhofen (2001) which integrates monopolistic competition and oligopoly into a single framework.2Melitz (2003) provides a highly influential analysis of trade under monopolistic competition with firm-level heterogeneity induced by productivity differences among firms. Furthermore, recent work, such asBertoletti and Etro (2013), allows for vertical (product quality) choices in models of trade with monopolistic competition.…”

The effect of audit market structure on audit quality and audit pricing in the private‐client market

“…The SCP paradigm assumes that the degree of market concentration is exogenous to firm conduct (Bain, , ; Etro, ; Mason, ). An alternative, contrasting view posits that market concentration arises endogenously when firms strive for economies of scale or scope under the stimuli of competition and clients' demand for audit quality (see, e.g., Demsetz, ; Etro, ; Sutton, ). In this view, market concentration is not a causal determinant of quality or pricing.…”