| The bulk of economic activity occurs in intermediate product markets. Both the buyer and the seller sides of these markets are often highly concentrated. Yet despite the apparent empirical importance of this market structure, bilateral oligopoly has received relatively little theoretical consideration.; Chapter 2 is a history of thought chapter. It finds that the roots of a model of bilateral oligopoly can be found in Cournot's Recherches . Specifically, even at its inception, the theory of oligopoly was sensitive to the possibility of having two qualitatively different strategic interactions present in a market—a feature that in later chapters characterizes the competition between buyers and sellers for the gains from trade.; Chapter 3 develops a model of oligopoly where firms compete in mark-ups. It is similar to other models in many respects (for instance, entry is quasi-competitive under general circumstances), and has at least two advantages. First, it is consistent with common descriptions of actual firm behavior. Also, it can easily be extended to integrate market power on both the buyer and the seller side, something which other approaches to oligopoly have found difficult to do.; Chapter 4 develops and studies a simple partial equilibrium model of bilateral oligopoly. The actions of rivals of a given type are strategic complements, while those of different types (buyer-seller pairs) are strategic substitutes. A major difference with standard oligopoly is that entry need not promote market efficiency, as measured by either the relative surplus from trade or a generalized Lerner index. This happens because entry, while intensifying competition on one side of the market, relaxes it on the other, so that the overall effect is ambiguous.; Another unique feature of bilateral oligopoly is that balanced increases in the numbers of buyers and sellers can be Pareto-improving. Chapter 5 corroborates this effect and explores it further in the context of general equilibrium market games. The underlying intuition is that agents prefer trading in larger economies when distortions are reduced uniformly enough across types so that the private losses resulting from decreased market power are compensated for by the more efficient pattern of aggregate trade that results. |
