Competition Among the Big and the Small

Jacques Thisse and Ken-Ichi Shimomura

No 7404, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Armchair evidence shows that many industries are made of a few big commercial or manufacturing firms, which are able to affect the market outcome, and of a myriad of small family-run businesses with very few employees, each of which has a negligible impact on the market. Examples can be found in apparel, catering, publishers and bookstores, retailing, finance and insurances, and IT industries. We provide a new general equilibrium framework that encapsulates both market structures. Due to the higher toughness of the market, the entry of big firms leads them to sell more through a market expansion effect, which is generated by the exit of small firms. Furthermore, the level of social welfare increases with the number of oligopolistic firms because the procompetitive effect associated with the entry of a big firm dominates the resulting decrease in product variety.

Keywords: Oligopoly; Monopolistic competition; Product differentiation; Welfare (search for similar items in EconPapers)
JEL-codes: L13 L40 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-com, nep-cse, nep-ent, nep-mic and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Competition among the big and the small (2012)
Working Paper: Competition among the big and the small (2012)
Working Paper: Competition Among the Big and the Small (2012)
Working Paper: Competition among the big and the small (2009)
Working Paper: Competition Among the Big and the Small (2009)
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