Capacity, Technology Portfolios, and the Paradox of Concentration (opens in new tab)

Does limiting the largest firm's capacity always lower prices? We model firms competing in supply schedules with multiple technologies, each defined by a constant marginal cost up to capacity. We show that capacity and technological efficiency coexist as distinct sources of market power, with opposite policy implications. When efficiency drives the market power of the largest firm, a small transfer of higher-cost capacity from rivals to the ...