On the Dilution of Market Power

33 Pages Posted: 16 Oct 2017  

Sergey Kokovin

National Research University Higher School of Economics

Mathieu Parenti

Catholic University of Louvain (UCL)

Jacques-François Thisse

Catholic University of Louvain (UCL)

Philip Ushchev

National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2017

Abstract

We show that a market involving a handful of large-scale firms and a myriad of small-scale businesses may give rise to different types of market structure, ranging from monopoly or oligopoly to monopolistic competition through new types of market structure. In particular, we find conditions under which the free entry and exit of small firms incentivizes the big firms to sell their varieties at the monopolistically competitive prices, as if they were to behave like in monopolistic competition. We call this result dilution of market power. The structure of preferences is the main driver for a specific market structure to emerge as an equilibrium outcome.

Keywords: Dominant firms, monopolistically competitive fringe; monopolistic competition, oligopoly; contestable markets

JEL Classification: D43, F12, L13

Suggested Citation

Kokovin, Sergey and Parenti, Mathieu and Thisse, Jacques-François and Ushchev, Philip, On the Dilution of Market Power (October 2017). CEPR Discussion Paper No. DP12367. Available at SSRN: https://ssrn.com/abstract=3053895

Sergey Kokovin (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Mathieu Parenti

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Jacques-François Thisse

Catholic University of Louvain (UCL) ( email )

Place des Doyens 1
Louvain-la-Neuve, 1348
Belgium

Philip Ushchev

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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