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Competition among the big and the small

Author

Listed:
  • SHIMOMURA, Ken-Ichi

    (RIEB, Kobe University)

  • THISSE, Jacques-François

    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

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

  • SHIMOMURA, Ken-Ichi & THISSE, Jacques-François, 2012. "Competition among the big and the small," LIDAM Discussion Papers CORE 2012009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2012009
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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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