Bertrand and Walras equilibria in large economies

This article studies the approximate Bertrand equilibria of a large but finite economy with Free entry for firms and small efficient scales. It establishes the equivalence of the set of regular Walras equilibria of a constant returns to scale limit economy and the set of limits of regular sequences of approximate Bertrand equilibria. This gives a foundation to the Walrasian hypothesis of perfect competition in explaining why firms behave as if they were price-takers and why they set prices that clear markets. (C) Academic Press. Inc.