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Competition Among the Big and the Small

Author

Listed:
  • 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))

Abstract

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.

Suggested Citation

  • Ken-Ichi Shimomura & Jacques-François Thisse, 2012. "Competition Among the Big and the Small," Discussion Paper Series DP2012-03, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2012-03
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    References listed on IDEAS

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    More about this item

    Keywords

    Oligopoly; Monopolistic competition; Product differentiation; Welfare;
    All these keywords.

    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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