Market size, fixed costs and horizontal concentration

A Cournot oligopoly model is used to relate horizontal concentration to mar ket size and fixed costs. Assuming that higher fixed costs yield a lower le vel of marginal costs, a vertically and horizontally growing market size is shown to cause horizontal concentration to decline if there is free entry. In an empirical test focusing on changes in total production, the number o f suppliers and the variance of market shares in 291 lines of business in W est Germany over the period 1978-1993 we find evidence for the existence of entry barriers. (C) 2001 Elsevier Science B.V. All rights reserved.