Firm size distortions under duopoly

  1. Miguel González-Maestre
  2. Diego Peñarrubia
Journal:
Estudios de economía

ISSN: 0304-2758,  0718-5286

Year of publication: 2017

Volume: 44

Issue: 2

Pages: 157-172

Type: Article

DOI: 10.4067/S0718-52862017000200157 DIALNET GOOGLE SCHOLAR lock_openDialnet editor

More publications in: Estudios de economía

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Abstract

Abstract: Motivated by the fact that some regulations involve extra costs for those firms at a size beyond a critical threshold, this paper contributes to the analysis of the welfare distortions due to these regulations. In the context of a duopoly, our results show that social welfare is not monotonic with the regulatory threshold. In particular, we obtain the paradoxical result that a policy decision of increasing the threshold might involve a dramatic decrease in welfare in some markets. An interesting consequence of this result is that the positive discrimination towards small firms is a rather subtle issue. Our results suggest that the relevant regulatory thresholds should differ across industries. Apparently, this is taken into account in some countries (e.g., USA), but not in many other countries.

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Data source: Dialnet