From walrasian oligopolies to natural monopolyan:an evolutionary model of market structure
- Alós Ferrer, Carlos
- Ania Martínez, Ana B.
- Vega-Redondo, Fernando
Year of publication: 1997
Issue: 24
Type: Working paper
Abstract
We study a market for a homogeneous good in which firms adjust their production decisions on the basis of imitation, learning from own experience, and local experimentation. For any fixed set of firms (more than one), long run behavior settles on a symmetric marginal-cost pricing equlibrium. When market entry and exit are allowed, we find a sharp effect of technology on longrun market structure. Specifically, we show that, under decreasing returns and some fixed cost, the market grows to full capacity at Walrasian equlibrium; on the other hand, if returns are increasing, the unique long run outcome involves a profit-maximizing monopolist.