Randomization and the limit points of monopolistic competition

Abstract

For a general equilibrium model of monopolistic competition, the set of competitive equilibria and the set of limits of Nash-Cournot equilibria for a sequence of replica economies coincide generically. The key feature which makes every limit of monopolistic competition perfectly competitive is that random rather than deterministic selections from the equilibrium price correspondence are considered in the definition of firms' reaction functions when there are multiple Walrasian equilibria. An existence result for mixed strategy Nash-Cournot equilibria in finite economies is also given.