A simple model of natural oligopoly with an unlimited number of firms

Prasad Krishnamurthy ()
Additional contact information
Prasad Krishnamurthy: University of California, Berkeley

Economics Bulletin, 2025, vol. 45, issue 2, 896 - 909

Abstract: In vertical models of product differentiation, consumers agree on their ranking of product quality but differ in their willingness to pay for it. When product quality is bounded and the range of willingness to pay is narrow, there are ``natural oligopoly'' equilibria in which a finite number of firms enter the market regardless of market size. I relax both of these assumptions and consider a simple vertical model in which the number of entering firms increases with market size. I derive analytical expressions for equilibrium prices, markups, and shares for any number of entering firms and limiting expressions for market shares and concentration as the number of firms grows large. The limiting market structure is highly concentrated. The market share of the largest firm converges from above to .58, the combined share of the four largest firms to .99, and the HHI to .44 (4,400). I conclude that vertical models can give rise to natural oligopoly when the range of quality is unbounded and the number of entering firms is unlimited.

Keywords: product differentiation; quality; market shares; oligopoly (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2025-06-30
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I2-P78.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-24-00506

Access Statistics for this article

More articles in Economics Bulletin from AccessEcon
Bibliographic data for series maintained by John P. Conley ().