Aggregative Oligopoly Games with Entry

Abstract

We compile an IO toolkit for aggregative games and use inclusive best reply func- tions to compare long-run market structures. We show strong neutrality properties across market structures. The IIA property of demands (CES and logit) implies that consumer surplus depends on the aggregate alone, and the Bertrand pricing game is aggregative. We link together the following results: merging parties’ profits fall but consumer surplus is unchanged, monopolistic competition is the market structure with the highest surplus, consumer gains from trade are higher under oligopoly than monopolistic competition. The basic results are shown to extend to games with a sub-aggregative structure.