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Endogenizing monopolistic competition

Name
Sergey
Surname
Kokovin
Scientific organization
NRU HSE
Academic degree
kand.phys.-mat.nauk
Position
leading researcher
Scientific discipline
Humanities & Social sciences
Topic
Endogenizing monopolistic competition
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, the free entry and exit of small firms incentivizes the big firms to sell their varieties at the monopolistically competitive prices.
Keywords
dominant firms, competitive fringe, monopolistic competition, contestability.
Summary

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 condition 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 multi-divisionalized firms. The structure of preferences is the main driving factor for a specific market structure to emerge as an equilibrium outcome.