On the Dilution of Market Power

32 Pages Posted: 19 Oct 2017 Last revised: 28 Nov 2017

See all articles by Sergey Kokovin

Sergey Kokovin

National Research University Higher School of Economics

Mathieu Parenti

Catholic University of Louvain (UCL)

Jacques-François Thisse

Catholic University of Louvain (UCL); Centre for Economic Policy Research (CEPR)

Philip Ushchev

National Research University Higher School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 18, 2017

Abstract

We show that a market involving a handful of large-scale firms and a myriad of small-scale firms 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 big firms to sell their varieties at the monopolistically competitive prices, behaving as if in monopolistic competition. We call this result the 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, oligo-poly, contestability

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 18, 2017). Higher School of Economics Research Paper No. WP BRP 176/EC/2017. Available at SSRN: https://ssrn.com/abstract=3055129 or http://dx.doi.org/10.2139/ssrn.3055129

Sergey Kokovin

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Philip Ushchev (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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