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Cover of: The Emergence of Intermediate Markets and Social Welfare
Walter Elberfeld

The Emergence of Intermediate Markets and Social Welfare

Section: Articles
Volume 159 (2003) / Issue 4, pp. 627-653 (27)
Published 09.07.2018
DOI 10.1628/0932456032584568
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  • 10.1628/0932456032584568
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Summary
The paper examines the welfare effects of the development of an intermediate market. For this purpose I develop a model where such a market may arise endogenously. If integrated and unintegrated firms coexist in equilibrium, consumers do not benefit from the emergence of an intermediate market. Under free entry into the final-good market all additional surplus accrues to the intermediate-good suppliers as profits. However, if entry into the whole industry is free, profits are eroded and scale economies are destroyed. From a social standpoint, entry into the intermediate market is excessive.