David vs. Goliath

Mathieu Parenti ()

Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: This paper develops a model where monopolistically competitive and oligopolistic firms coexist.The model is characterized by a monopolistically competitive fringe and a few multi-product firmswhich decide to be large or not at equilibrium. Conditions are derived for the coexistence of bothtypes of firms: heterogeneity in production efficiency, captured by economies of scope for large firms,appears as a necessary condition for them to coexist at equilibrium. The entry of a large firm raises theaverage price decreasing thereby consumer surplus despite an increase in the total number of varieties.An application to international trade is considered.

Keywords: monopolistic competition; oligopolistic market structure; large firms; international trade (search for similar items in EconPapers)
JEL-codes: D40 F11 L10 (search for similar items in EconPapers)
Pages: 45 p.
Date: 2015-12
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