Premium
Competition among the big and the small
Author(s) -
Shimomura KenIchi,
Thisse JacquesFrançois
Publication year - 2012
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2012.00168.x
Subject(s) - competition (biology) , diversity (politics) , resizing , free entry , market structure , industrial organization , outcome (game theory) , barriers to entry , product differentiation , welfare , perfect competition , product market , business , economics , product (mathematics) , market competition , microeconomics , market economy , international economics , mathematics , european union , sociology , incentive , anthropology , geometry , ecology , biology
Many industries are made up 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 procompetitive effect associated with entry dominates the resulting decrease in product diversity.