More competitors or more competition? Market concentration and the intensity of competition

We present a model of competitive interaction among n symmetric …rms producing a homongeous good that includes both Bertrand and Cournot competition as special cases. In our model the intensity of competition is captured by a single parameter –the perceived slope of competitors’supply functions. We show that total welfare increases monotonically with the intensity of competition and the number of competitors. We then examine how the intensity of competition a¤ects the gains from changing the number of competitors.When competition is intense, most of the gains from extra competition are captured with the entry of a small number of …rms and subsequent gains from entry are small. Conversely, when the intensity of competition is small, a reduction in the number of …rms can have a large impact on welfare. Key-words: Competition intensity; number of competitors; mergers. JEL Classi…cation: L11, L13, L41.