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Competition among the big and the small

  • Ken-Ichi Shimomura
  • Jacques-François Thisse

Many industries are made of a few big firms, which are able to manipulate the market outcome, and of a host of small businesses, each of which has a negligible impact on the market. We provide a general equilibrium framework that encapsulates both market structures. Due to the higher toughness of competition, the entry of big firms leads them to sell more through a market expansion effect generated by the shrinking of the monopolistically competitive fringe. Furthermore, social welfare increases with the number of big firms because the pro-competitive effect associated with entry dominates the resulting decrease in product diversity.

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Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 43 (2012)
Issue (Month): 2 (06)
Pages: 329-347

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Handle: RePEc:bla:randje:v:43:y:2012:i:2:p:329-347
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