| Abstract: |
Corporate managers and executive compensation in many industries place
significant emphasis on measures of firm size, such as sales revenue or market
share. Such objectives have an important - yet thus far unquantifed - impact
on market performance. With n symmetric firms, equilibrium welfare losses are
of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than
5% for many empirically relevant market structures, despite significant firm
asymmetry and industry concentration. They can be estimated using only basic
information on market shares. These results also apply to oligopsonistic
competition (e.g., for retail bank deposits) and strategic forward trading
(e.g., in restructured electricity markets). |