DIVERSIFICATION AND COMPETITION - FINANCIAL INTERMEDIATION IN A LARGECOURNOT-WALRAS ECONOMY

An economy with partially diversified imperfectly competitive (Cournot ) intermediaries is replicated. The Cournot-Walras equilibrium converg es to tile perfectly competitive equilibrium with no uncertainty. Desp ite the convergence. the tension between diversification and competiti on persists when tho economy becomes large, and is manifested ill the rates of convergence of price, quantities, and pel capita welfare to t heir respective limits. To maximize the rate af convergence of pei cap ita welfare, resources must be allocated in a particular way that bala nces the gains from better diversified intermediaries and the gains Fr om more competition in the intermediation sector. Journal of Economic Literature classification numbers: D43,D61, D89, G10, G21, L10, L16, O 16. (C) 1997 Academic Press.