This note gives a method of determining the long-run equilibrium output of a firm operating under imperfect competition that differs from standard methods of output determination and reveals properties of the equilibrium that standard methods conceal. This method requires a basic cost-effectiveness condition to hold, which leads to a highly elastic demand. If we strengthen that condition a bit, long-run equilibrium under free entry and exit becomes indistinguishable from a long-run equilibrium under perfect competition, even though products are differentiated and the condition given by Rosen for perfect competition with product differentiation fails to hold.

Additional Metadata
Keywords Imperfect Competition, Substitutability, Cost Effectiveness, Firm Size, Excess Capacity.
JEL Production; Capital and Total Factor Productivity; Capacity (jel D24), Oligopoly and Other Forms of Market Imperfection (jel D43), Allocative Efficiency; Cost Benefit Analysis (jel D61)
Publisher Department of Economics
Series Carleton Economic Papers
Note Revised 9 October 2012 and 9 January 2017; 13 July 2017 formerly titled “Product Differentiation, Firm Size, and Entry”
Citation
Carson, Richard L. (2004). A Competitive Equilibrium With Product Differentiation (No. CEP 04-18). Carleton Economic Papers. Department of Economics.