Title

Competition Among the Big and the Small

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.

Keywords

oligopoly, monopolistic competition, product differentiation, welfare

JEL Classification

L13, L40

Inquiries

Ken-Ichi SHIMOMURA
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Jacques-François THISSE
CORE-Université catholique de Louvain (Belgium), CREA-Université du Luxembourg and CEPR