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Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model

  • Benassy, Jean-Pascal

This paper examines the role of market size in a model of price competition with imperfect substitutes that bridges the Chamberlin and Bertrand-Edgeworth approaches. The author investigates the role of two fundamental parameters in the existence of an equilibrium: the market size, given by the number of competitors, and the degree of substitutability. He proves that (1) for a given number of competitors, a sufficiently large, but finite, degree of substitutability entails nonexistence; and (2) conversely, for a given upper bound on the degree of substitutability, a sufficiently large number of competitors ensures existence. He finally investigates the proximity of an equilibrium (when it exists) to a "competitive outcome," and finds that both high substitutability and large market size are a condition for competitiveness. Copyright 1989 by The Review of Economic Studies Limited.

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Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 56 (1989)
Issue (Month): 2 (April)
Pages: 217-34

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Handle: RePEc:bla:restud:v:56:y:1989:i:2:p:217-34
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