Vanishing Market Power

Abstract

This paper presents a set of results concerning price formation and convergence to perfect competition in markets populated by sellers of differentiated products. It generalizes results of Butters (1977), Hart (1979), Perloff and Salop (1985), Wolinsky (1986), Armstrong et al. (2009), and Moraga-Gonzalez et al. (2017) by studying an environment with differentiated goods and asymmetric information, where buyers have access to different sellers with varying probability (some sellers have a larger “consumer base” than others) and different buyers are matched with a different numbers of sellers. I show that as frictions of trading vanish the equilibrium converges to perfect competition.