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Market leadership strategies and effects in multinational oligopolies

Market leadership strategies and effects in multinational oligopolies

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Imperfect competition in a general equilibrium is the picture of modern industrial product markets from a bird’s eye view: An asymmetry in the speed of collecting national parameters between multinationals (who have no time lag due to foreign parameters) and national firms within an industry can alter oligopolies of Cournot type to Stackelberg competition as profit maximizing output decisions become staged on a timeline. The fitting general equilibrium model yields lower welfare with a switch to a staged setting since the drop in profits is not compensated by the rise in wages that occur due to higher equilibrium output in market leadership situations. Thus, this work on industry leadership develops a power of concentration effect that is negative on general welfare, even in a comparatively advantageous setting for the dominant multinationals. The model highlights the importance of Ricardo’s assumption that welfare increasing trade patterns emerge from efficiency benefits only and also seconds antitrust laws against a dominant position for the sake of (consumer) welfare.