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Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?

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Author Info
Stiglitz, Joseph E

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Abstract

This paper uses a variant of the standard search model to examine market equilibrium and the co nsequences of an increase in the number of firms. If marginal search costs increase with the number of searches, then the demand curve fac ing any firm will be kinked, with the elasticity of demand with respe ct to price decreases being less than with respect to price increases ; prices may not change in response to changes in marginal costs. As the number of firms increases, the maximum price that is consistent w ith equilibrium increases to the monopoly price, but the minimum pric e decreases. On the other hand, if marginal search costs decrease wit h the number of searches, equilibrium, if it exists, is characterized by a price distribution. Copyright 1987 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 95 (1987)
Issue (Month): 5 (October)
Pages: 1041-61
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Handle: RePEc:ucp:jpolec:v:95:y:1987:i:5:p:1041-61

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  1. Paolo Buccirossi, 2001. "Price Competition And Probabilistic Demand Yield The Cournot Outcome, The Bertrand Outcome, And Much More," Working Papers 41, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  2. ANDERSON, Simon & de PALMA, AndrŽ, 2003. "Price dispersion," CORE Discussion Papers 2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
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  3. Cotteleer, Geerte & Gardebroek, Cornelis, 2006. "Bargaining and market power in a GIS-based hedonic pricing model of the agricultural land market," 2006 Annual meeting, July 23-26, Long Beach, CA 21255, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Julio J. Rotemberg, 2004. "Fair Pricing," NBER Working Papers 10915, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Jim Engle-Warnick & Bradley Ruffle, 2006. "Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets," Departmental Working Papers 2006-12, McGill University, Department of Economics. [Downloadable!]
  6. Norbert Schulz & Konrad Stahl, 1989. "Good and Bad Competition in Spatial Markets for Search Goods: the Case of Linear Utility Functions," Annales d'Economie et de Statistique, ADRES, issue 15-16, pages 06, Juillet-D. [Downloadable!]
  7. Jim Engle-Warnick & Bradley Ruffle, 2002. "Buyer Countervailing Power versus Monopoly Power: Evidence from Experimental Posted-Offer Markets," Economics Papers 2002-W14, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  8. Maarten C.W. Janssen & José Luis Moraga-González & Matthijs R. Wildenbeest, 2004. "A Note on Costly Sequential Search and Oligopoly Pricing," Tinbergen Institute Discussion Papers 04-068/1, Tinbergen Institute. [Downloadable!]
  9. Joseph E. Stiglitz, 1999. "Toward a General Theory of Wage and Price Rigidities and Economic Fluctuations," American Economic Review, American Economic Association, vol. 89(2), pages 75-80, May. [Downloadable!] (restricted)
  10. Paolo Buccirossi, 2000. "Buyer’S Decisions And Price Competition," Working Papers 36, Sapienza University of Rome, Department of Public Economics. [Downloadable!]
  11. Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Henrik Orzen, 2006. "Counterintuitive Number Effects in Experimental Oligopolies," Discussion Papers 2006-22, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
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  13. Klaus Adam, 2001. "Competitive Prices in Markets with Search and Information Frictions," CSEF Working Papers 55, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
  14. José Luis Moraga-González & Zsolt Sándor & Matthijs R. Wildenbeest, 2008. "Nonparametric Estimation of the Costs of Non-Sequential Search," Tinbergen Institute Discussion Papers 07-102/1, Tinbergen Institute. [Downloadable!]
    Other versions:
  15. R. Bernardini Papalia & S. Bertarelli, 1998. "An Optimal Partnership Search Model: Theoretical Implications for the Europartenariat Event," Working Papers 310, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
  16. Anindya Ghose & Bin Gu, 2006. "Search Costs, Demand Structure and Long Tail in Electronic Markets: Theory and Evidence," Working Papers 06-19, NET Institute, revised Oct 2006. [Downloadable!]
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