Modeling the Market Based on Monopolistic Competition of Trade: Case Study of Auto Market

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Emamipour, Sajad | 2012

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 45647 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Abedini, Javad
Abstract:
Concentration brings a twofold result to the market. From one side, it reduces the competition and then the number of varieties in the market, which discourages consumption; from another side, however, it reduces the price of goods due to increasing returns to scale and so encourages consumption. This controversial role of concentration raises the question that which degree of concentration might be, say, optimum for the market. Based on the Krugman approach, this study makes a relation between the number of firms, export volume, marginal and average fixed cost of production. We show that when number of firms reduces in the market, export volume could increase because of a reduction in production costs but also reduces because of a reduction in the number of varieties. An empirical study accompanies this attempt. We try to relate the degree of concentration in the world auto industry to the volume of exports and production costs. This relation indicates that which concentration is expected for a typical country based on the real records of other countries. The estimates are in line with our theoretical expectations. Some lessons are derived for Iran
Keywords:
Market Mechanism ; Automotive Industry ; Monopolistic Competition Model ; Market Concentration ; Herfindahl Index

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