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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.

Keywords: Competition intensity ; Number of competitors ; Mergers

Subject(s): Production Economics

Research and Development/Tech Change/Emerging Technologies

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 appears in: University of Queensland > School of Economics > Risk and Sustainable Management Group Working Papers





Autor: Menezes, Flavio ; Quiggin, John

Fuente: http://ageconsearch.umn.edu/record/151195?ln=en



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