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David vs. Goliath

Listed author(s):
  • Mathieu Parenti

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.

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File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/222886/3/2015-53-PARENTI-david.pdf
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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number ECARES 2015-53.

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Length: 45 p.
Date of creation: Dec 2015
Publication status: Published by:
Handle: RePEc:eca:wpaper:2013/222886
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Web page: http://difusion.ulb.ac.be

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  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, 06.
  2. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 829-858.
  3. 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.
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