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Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?

Author

Listed:
  • Zhelobodko, E.

    (NRU-HSE, Moscow, Russia
    IM SB RAS, Novosibirsk, Russia
    NSU, Novosibirsk, Russia)

  • Sidorov, A.

    (NRU-HSE, Moscow, Russia
    IM SB RAS, Novosibirsk, Russia
    NSU, Novosibirsk, Russia)

  • Thisse, J.-F.

    (NRU-Higher School of Economics, Moscow, Russia Author-Workplace-Name: CORE Universite catholique de Louvain, Belgium)

Abstract

The paper studies a market of horizontally differentiated good under increasing return to scale and exogenous number of firms. Three concepts of equilibria are compared: Cournot, Bertrand and monopolistic competition. Under fairly general assumptions on consumer's preferences, it is shown that Lerner index is the highest in Cournot case, monopolistic competition provides the lowest one and Bertrand equilibrium takes intermediate position. When the number of firms N increases, both oligopolistic equilibria converge to monopolistic competitive equilibrium with rate 1/ N . Thus the study generalizes the similar results on markets of homogeneous goods.

Suggested Citation

  • Zhelobodko, E. & Sidorov, A. & Thisse, J.-F., 2013. "Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 10-26.
  • Handle: RePEc:nea:journl:y:2013:i:19:p:10-26
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    References listed on IDEAS

    as
    1. Evgeny Zhelobodko & Sergey Kokovin & Mathieu Parenti & Jacques-François Thisse, 2011. "Monopolistic competition in general equilibrium: Beyond the CES," Working Papers halshs-00566431, HAL.
    2. Amir, Rabah & Jin, Jim Y., 2001. "Cournot and Bertrand equilibria compared: substitutability, complementarity and concavity," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 303-317, March.
    3. ZHELOBODKO, Evgeny & KOKOVIN, Sergey & PARENTI, Mathieu & THISSE, Jean - François, 2011. "Monopolistic competition in general equilibrium: beyond the CES," CORE Discussion Papers 2011010, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Novshek, William & Chowdhury, Prabal Roy, 2003. "Bertrand equilibria with entry: limit results," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 795-808, June.
    5. William Novshek, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 473-486.
    6. R. J. Ruffin, 1971. "Cournot Oligopoly and Competitive Behaviour," Review of Economic Studies, Oxford University Press, vol. 38(4), pages 493-502.
    7. Koji Okuguchi, 1973. "Quasi-Competitiveness and Cournot Oligopoly," Review of Economic Studies, Oxford University Press, vol. 40(1), pages 145-148.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    monopolistic competition; oligopoly; differentiated goods; market power; Lerner index;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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