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On the Dilution of Market Power

Author

Listed:
  • Sergey Kokovin

    () (National Research University Higher School of Economics)

  • Mathieu Parenti

    () (National Research University Higher School of Economics)

  • Jacques-Francois Thisse

    () (National Research University Higher School of Economics)

  • Philip Ushchev

    () (National Research University Higher School of Economics)

Abstract

We show that a market involving a handful of large-scale firms and a myriad of small-scale firms may give rise to different types of market structure, ranging from monopoly or oligopoly to monopolistic competition through new types of market structure. In particular, we find conditions under which the free entry and exit of small firms incentivizes big firms to sell their varieties at the monopolistically competitive prices, behaving as if in monopolistic competition. We call this result the dilution of market power. The structure of preferences is the main driver for a specific market structure to emerge as an equilibrium outcome

Suggested Citation

  • Sergey Kokovin & Mathieu Parenti & Jacques-Francois Thisse & Philip Ushchev, 2017. "On the Dilution of Market Power," HSE Working papers WP BRP 176/EC/2017, National Research University Higher School of Economics.
  • Handle: RePEc:hig:wpaper:176/ec/2017
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    dominant rms; monopolistically competitive fringe; monopolistic competition; oligopoly; contestability.;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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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