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Competition Among the Big and the Small

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  • Shimomura, Ken-Ichi
  • Thisse, Jacques-François

Abstract

Armchair evidence shows that many industries are made of a few big commercial or manufacturing firms, which are able to affect the market outcome, and of a myriad of small family-run businesses with very few employees, each of which has a negligible impact on the market. Examples can be found in apparel, catering, publishers and bookstores, retailing, finance and insurances, and IT industries. We provide a new general equilibrium framework that encapsulates both market structures. Due to the higher toughness of the market, the entry of big firms leads them to sell more through a market expansion effect, which is generated by the exit of small firms. Furthermore, the level of social welfare increases with the number of oligopolistic firms because the procompetitive effect associated with the entry of a big firm dominates the resulting decrease in product variety.

Suggested Citation

  • Shimomura, Ken-Ichi & Thisse, Jacques-François, 2009. "Competition Among the Big and the Small," CEPR Discussion Papers 7404, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7404
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Angela Cheptea & Lionel Fontagné & Soledad Zignago, 2014. "European export performance," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 25-58, February.
    2. Jacques-Francois Thisse & Philip Ushchev, 2016. "Monopolistic Competition Without Apology," HSE Working papers WP BRP 141/EC/2016, National Research University Higher School of Economics.
    3. Simon P. Anderson, Nisvan Erkal and, 2009. "Aggregative Oligopoly Games with Entry," Department of Economics - Working Papers Series 1175, The University of Melbourne, revised 2013.
    4. Italo Colantone & Kristien Coucke & Leo Sleuwaegen, 2015. "Low-cost import competition and firm exit: evidence from the EU," Industrial and Corporate Change, Oxford University Press, vol. 24(1), pages 131-161.
    5. Sloev, Igor & Thisse, Jacques-François & Ushchev, Philip, 2013. "Do we go shopping downtown or in the `burbs? Why not both?," CEPR Discussion Papers 9604, C.E.P.R. Discussion Papers.
    6. Ushchev Ph. & Sloev I. & Thisse J.-F., 2014. "Competition between Small Shops and a Large Shopping Center," Journal of the New Economic Association, New Economic Association, vol. 23(3), pages 12-37.
    7. Kokovin, Sergey & Parenti, Mathieu & Thisse, Jacques-Fran�ois & Ushchev, Philip, 2017. "On the Dilution of Market Power," CEPR Discussion Papers 12367, C.E.P.R. Discussion Papers.
    8. Jörn Kleinert & Julien Martin & Farid Toubal, 2015. "The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, pages 134-159.
    9. PARENTI, Mathieu & ,, 2013. "Large and small firms in a global market: David vs. Goliath," CORE Discussion Papers 2013058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Ushchev, Philip & Sloev, Igor & Thisse, Jacques-François, 2015. "Do we go shopping downtown or in the ‘burbs?," Journal of Urban Economics, Elsevier, vol. 85(C), pages 1-15.
    11. R. Cellini & L. Lambertini & G. I. P. Ottaviano, 2015. "To Know or Not To Know: Strategic Inattention and Endogenous Market Structure," Working Papers wp987, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Philip Verwimp, 2015. "Foreign Fighters in Syria and Iraq and the socio-economic environment they faced at home: a comparison of European countries," HiCN Working Papers 201, Households in Conflict Network.
    13. Toshihiro Matsumura & Yasunori Okumura, 2014. "Comparison between specific taxation and volume quotas in a free entry Cournot oligopoly," Journal of Economics, Springer, pages 125-132.
    14. Keith Head & Barbara J. Spencer, 2017. "Oligopoly in International Trade: Rise, Fall and Resurgence," NBER Working Papers 23720, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    monopolistic competition; oligopoly; product differentiation; welfare;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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