How do small firms survive in an oligopoly if large firms already dominate a huge amount of market share in the market? in terms of the supermarket industry between large supermarkets and small grocery stores around the country.
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$\begingroup$ What do you mean by "control"? $\endgroup$– GiskardFeb 25, 2019 at 7:51
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$\begingroup$ That they already have high market share of the industry $\endgroup$– lookbehindFeb 25, 2019 at 7:58
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1 Answer
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When there are few big firms and many smaller firms with a small market share, economists speak about a market with a competitive fringe. The smaller firms are price takers, have higher marginal and average costs and a lower markup than bigger firms. They have often a lower rate of profit than big firms. Although markets with heterogeneous firms are often not presented in textbooks, the economic literature is full with contributions investigating heterogenous firms. This is more realistic, but somewhat more complicated than the homogenous firm framework. Existence and unicity of the short- and long-run equilibrium are not always guaranteed.
Small firms survive because they have often smaller sunk costs (entry and exit costs) than larger firms, and often pay lower wages.
