How can a "producer face a limited market as regards sales and yet a highly competitive market as regards price"?

Question

Kaldor (1972):

it is evident that the co-existence of increasing returns and competition—emphasised by Young and also by Marx, but wholly excluded by the axiomatic framework of Walrasian economics—is a very prominent feature of de-centralised economic systems but the manner of functioning of which is still a largely uncharted territory for the economist. We have no clear idea of how competition works in circumstances where each producer faces a limited market as regards sales and yet a highly competitive market as regards price.

I don't understand the last sentence. Could someone explain and also provide concrete examples of how it might be possible that a "producer faces a limited market as regards sales and yet a highly competitive market as regards price"?

Answer 1

Could someone explain and also provide concrete examples of how it might be possible that a "producer faces a limited market as regards sales and yet a highly competitive market as regards price"?

I believe an example would the Bertrand duopoly. In Bertrand duopoly you have only two firms so all sales are made just by two firms, but we know that in Bertrand duopoly, thanks to competition, the optimum price will be exactly equal to marginal costs like in perfect competition.

For example, assume that there two firms competing on price. Their demand is given by:

$ q_1= D_1(p_1,p_2) = \begin{cases} D_1(p_1)/2, \text{ if } p_1 =p_2 \\ D_1(p_1), \text{ if } p_1<p_2\\ 0, \text{ if } p_1>p_2 \end{cases} $

the marginal costs of will be given by $MC$. In such case the firm's best responses will be given as in the picture below (taken from wikipedia). As can be seen from the picture the best responses intersect exactly where prices equal marginal costs so in such situation you get prices that are equivalent to perfectly competitive prices, even though the sales are made on duopoly market.