Map of San Candido on The firm with the lower price wins the whole market; if they offer the same price, each gets half. Competition still induces each firm to price at marginal cost. Why? If the firms initially ask for $1.00 above marginal cost, each firm could steal all of its competitor’s business by cutting its price by one penny. Like an auction, price slashing continues until price and marginal cost are equal. What if the minimum efficient scale is so large that only one firm can survive? Surely competition breaks down? Not necessarily. As long as there is potential competition, a single firm may act like a perfect competitor. Map of San Candido 2016.
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