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Competition among the big and the small

  • SHIMOMURA, Ken-Ichi

    ()

    (RIEB, Kobe University)

  • THISSE, Jacques-François

    ()

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

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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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2012009.

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Date of creation: 08 Mar 2012
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Handle: RePEc:cor:louvco:2012009
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