Oligopoly and Welfare

Abstract

Welfare losses due to monopoly have received much attention in the literature since the pioneering work of Harberger (1954). Over the past decade the discussion has inter alia been extended to take explicit account of oligopolistic interaction (see, in particular, Dixit and Stern, 1982; Masson and Shaanan, 1984; Daskin, 1991). However the ultimate aim has mostly remained to work towards theoretically well-grounded empirical estimates of actual losses in different industries, sectors or economies. As Daskin observes, the range of estimated losses, though significantly larger than Harberger’s original 0.1 per cent of GNP, with one or two notable exceptions rarely exceeds 1–3 per cent of the value of output based on monopoly models¹; though, using a theoretical extension and empirical implementation of Dixit and Stern, Daskin himself goes on to report an estimate of 6–10 per cent of the value of shipments (for the US manufacturing sector) if industry demand is elastic, and ‘considerably higher’ with inelastic demand.