Market Size, Technology Choice, and Market Structure

Walter Elberfeld and Georg Götz

German Economic Review, 2002, vol. 3, issue 1, 25-41

Abstract: We introduce technology choice into a model of monopolistic competition and analyze the structural effects of changes in market size. A larger market leads to the adoption of a large‐scale technology. If a technology switch occurs, the number of firms decreases, and a rationalizing effect arises: individual and aggregate output increases; prices fall. This need not benefit consumers since a technology switch is associated with a decrease in product variety.

Date: 2002
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https://doi.org/10.1111/1468-0475.00050

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