Perfect Competition and Fixed Costs: The Role of the Ownership Structure

Abstract

Abstract It is widely considered that a (perfectly) competitive equilibrium cannot survive to the existence of fixed costs because firms generate losses in equilibrium. In this theoretical and methodological article, I demonstrate that this statement is not valid by developing some counter-examples. In particular, I clearly show that a competitive equilibrium and fixed costs are tenable, depending on the ownership structure of models. I then delimit the role of fixed costs in macroeconomic models. Notably, I find that fixed costs can improve the level of aggregate output in the long run.