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David vs. Goliath

Author

Listed:
  • Mathieu Parenti

Abstract

This paper develops a model where monopolistically competitive and oligopolistic firms coexist.The model is characterized by a monopolistically competitive fringe and a few multi-product firmswhich decide to be large or not at equilibrium. Conditions are derived for the coexistence of bothtypes of firms: heterogeneity in production efficiency, captured by economies of scope for large firms,appears as a necessary condition for them to coexist at equilibrium. The entry of a large firm raises theaverage price decreasing thereby consumer surplus despite an increase in the total number of varieties.An application to international trade is considered.

Suggested Citation

  • Mathieu Parenti, 2015. "David vs. Goliath," Working Papers ECARES ECARES 2015-53, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/222886
    as

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    References listed on IDEAS

    as
    1. Ken-Ichi Shimomura & Jacques-François Thisse, 2012. "Competition among the big and the small," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 329-347, June.
    2. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
    3. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 829-858.
    4. d'Aspremont, Claude & Dos Santos Ferreira, Rodolphe & Gerard-Varet, Louis-Andre, 1996. "On the Dixit-Stiglitz Model of Monopolistic Competition," American Economic Review, American Economic Association, vol. 86(3), pages 623-629, June.
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    Keywords

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    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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