DYNAMIC GAINS AND STATIC LOSSES IN OLIGOPOLY: EVIDENCE FROM THE BEER INDUSTRY
- 1 July 1999
- journal article
- Published by Wiley in Economic Inquiry
- Vol. 37 (3) , 554-573
- https://doi.org/10.1111/j.1465-7295.1999.tb01448.x
Abstract
The paper provides a new perspective on the estimate of the welfare losses due to oligopoly. I argue that the conventional analysis of monopoly/oligopoly welfare losses can be misleading. If causation runs from investment in new technology to increased concentration, dynamic gains from innovation should be taken into account for a fuller analysis of welfare losses. I use beer‐industry data to demonstrate that technological changes Granger‐cause beer prices, and beer prices Granger‐cause the Herfindahl index. I then estimate the dynamic gains to consumers in the beer industry and find these gains to be impressive relative to conventional static losses. (JEL L10, L13)Keywords
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