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Competition Among the Big and the Small

  • Ken-Ichi Shimomura

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Jacques-François Thisse

    (CORE, Université catholique de Louvain (Belgium), CREA, Université du Luxembourg (Luxembourg) and CEPR (UK))

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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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-03.pdf
File Function: First version, 2012
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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2012-03.

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Length: 28 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:kob:dpaper:dp2012-03
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