Our Seminars & Workshops

Title: Competing for the Quiet Life: An Organizational Theory of Market Structure (with Patrick Legros and Zsolt Udvari).

ABSTRACT: We develop an incomplete-contracts model of endogenous market structure for a homogeneous-good industry. A large number of identical incentive-constrained producers each decide whether to stand alone as price-taking competitors, or to horizontally integrate with others by selling their assets to profit-motivated professional managers, who then Cournot compete in the product market. Despite the absence of significant technological non-convexities, the equilibrium market structure is often an oligopoly, demonstrating that contracting imperfections are a distinct source of market power. Unlike standard endogenous entry models, concentration may increase with the size of market demand. We discuss some implications for competition policy. We also consider extensions that allow for variation in the degree of contractibility, entry of additional producers into the market, and the emergence of an endogenous competitive fringe.