NONATOMIC ECONOMIES AND THE BOUNDARIES OF PERFECT COMPETITION

This paper explores the distinction between nonatomicity and thick mar kets as the source of perfect competition. The focus of the paper is t he construction of a model of an imperfectly competitive economy with a nonatomic continuum of traders and a continuum of differentiated com modities, for which Walrasian equilibria exist. The failure of perfect competition in this instance can be identified in two ways: individua ls can affect prices and the core is strictly larger than the set of W alrasian allocations. By contrast, it is shown that, when markets are physically or economically thick (or both), then individuals cannot ty pically affect prices and the core always coincides with the set of Wa lrasian allocations.