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Full-Text Articles in Industrial Organization
Number Of Firms And Price Competition, Kyle Bagwell, Gea Myoung Lee
Number Of Firms And Price Competition, Kyle Bagwell, Gea Myoung Lee
Research Collection School Of Economics
The relationship between the number of firms and price competition is a central issue in economics. To explore this relationship, we modify Varianís (1980) model and assume that firms are privately informed about their costs of production. Allowing that the support of possible cost types may be large, we show that an increase in the number of firms induces lower (higher) prices for lower-cost (highercost) firms. We also characterize the pricing distribution as the number of firms approaches infinity, finding that the equilibrium pricing function converges to the monopoly pricing function for all but the lowest possible cost type. If …