Computing Welfare Losses from Data under Imperfect Competition with Heterogeneous Goods Articles uri icon

publication date

  • November 2009

start page

  • 646

end page

  • 654


  • 6


  • 27

International Standard Serial Number (ISSN)

  • 0167-7187

Electronic International Standard Serial Number (EISSN)

  • 1873-7986


  • We study the percentage of welfare losses (PWL) yielded by imperfect competition under product differentiation. When demand is linear, even if prices, outputs, costs and the number of firms can be observed, PWL is arbitrary in both Cournot and Bertrand equilibria. If in addition the elasticity of demand (resp. cross elasticity of demand) is known, we can calculate PWL in a Cournot (resp. Bertrand) equilibrium. When demand is isoelastic and there are many firms, PWL can be computed from prices, outputs, costs and the number of firms. We find that price&-marginal cost margins and demand elasticities may influence PWL in a counterintuitive way. We also provide conditions under which PWL increases or decreases with concentration.