More Competitors or more Competition? Market Concentration and the Intensity of Competition

We present a model of competitive interaction among n symmetric firms producing a homogeneous good that includes both Bertrand and Cournot competition as special cases. In our model the intensity of competition is captured by a single parameter—the perceived slope of competitors’ supply functions. We show that total welfare increases monotonically with the intensity of competition and the number of competitors. We then examine how the intensity of competition affects the gains from changing the number of competitors. When competition is intense, most of the gains from extra competition are captured with the entry of a small number of firms and subsequent gains from entry are small. Conversely, when the intensity of competition is small, a reduction in the number of firms can have a large impact on welfare.


Issue Date:
Aug 29 2011
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/151195
Total Pages:
10
JEL Codes:
L11; L13; L41
Series Statement:
Risk and Uncertainty Program
R11/1




 Record created 2017-04-01, last modified 2017-12-12

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