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Markups and the number of firms in a simple model of imperfect competition

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  • Chang, Cheng-wei
  • Lai, Ching-chong

Abstract

Two counter-intuitive results regarding the number of firms emerge from the existing monopolistic competition literature. First, the number of firms is positively related to the extent of the monopoly power. Second, when the goods market is perfectly competitive, the number of firms is reduced to zero. This paper proposes a plausible way to escape from these two counter-intuitive deficiencies.

Suggested Citation

  • Chang, Cheng-wei & Lai, Ching-chong, 2012. "Markups and the number of firms in a simple model of imperfect competition," Economics Letters, Elsevier, vol. 116(3), pages 277-280.
    • Handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:277-280
    DOI: 10.1016/j.econlet.2012.04.005
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    References listed on IDEAS

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    Cited by:

    1. Federico Etro, 2014. "The Theory Of Endogenous Market Structures," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 804-830, December.
    2. Osharin Alexander & Verbus Valery, 2015. "Heterogeneous consumers and market structure in a monopolistically competitive setting," EERC Working Paper Series 15/03e, EERC Research Network, Russia and CIS.
    3. Cavallari, Lilia, 2012. "Markups and Entry in a DSGE Model," MPRA Paper 41816, University Library of Munich, Germany.
    4. Cavallari, Lilia, 2013. "A note on firm entry, markups and the business cycle," Economic Modelling, Elsevier, vol. 35(C), pages 528-535.
    5. Cheng-wei Chang & Ching-chong Lai, 2021. "Optimal fiscal policies and market structures with monopolistic competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(6), pages 1385-1411, December.

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    More about this item

    Keywords

    Monopolistic competition; Endogenous entry; Market power;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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