Monopolistic Competition vs Oligopoly in the "Large Economy": How Much Is Difference?

The paper studies a market of horizontally differentiated good under increasing return to scale and exogenous number of firms. Three concepts of equilibria are compared: Cournot, Bertrand and monopolistic competition. Under fairly general assumptions on consumer's preferences, it is shown that Lerner index is the highest in Cournot case, monopolistic competition provides the lowest one and Bertrand equilibrium takes intermediate position. When the number of firms N increases, both oligopolistic equilibria converge to monopolistic competitive equilibrium with rate 1/ N . Thus the study generalizes the similar results on markets of homogeneous goods.