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Working paper

The Stable Coexistence of Oligopolies and the Competitive Fringe

In this paper, we introduсe a simple new theory on mixed сompetition between oligopolistiс firms and the competitive fringe, assuming a comparative advantage for big firms and free entry for small firms. Oligopolies are defined as conglomerates, each part of which benefits from joint operations through lower costs. Our theory implies that (i) industries with a few oligopolies arise as a stable outcome of mixed competition; (ii) mixed competition differs from the monopolistic competition of single-product firms due to the underproduction of oligopolistic firms and differs from pure oligopolistic competition since constraints on this underproduction are imposed by the competitive fringe; (iii) a positive shock in the market size an strengthen or weaken the competitiveness of the economy through the growth of the number of oligopolies.