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Competition and the Number of Firms in a Market: Are Duopolies More Competitive than Atomistic Markets?

Joseph Stiglitz

Journal of Political Economy, 1987, vol. 95, issue 5, 1041-61

Abstract: This paper uses a variant of the standard search model to examine market equilibrium and the co nsequences of an increase in the number of firms. If marginal search costs increase with the number of searches, then the demand curve fac ing any firm will be kinked, with the elasticity of demand with respe ct to price decreases being less than with respect to price increases ; prices may not change in response to changes in marginal costs. As the number of firms increases, the maximum price that is consistent w ith equilibrium increases to the monopoly price, but the minimum pric e decreases. On the other hand, if marginal search costs decrease wit h the number of searches, equilibrium, if it exists, is characterized by a price distribution. Copyright 1987 by University of Chicago Press.

Date: 1987
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Handle: RePEc:ucp:jpolec:v:95:y:1987:i:5:p:1041-61