Heterogeneity under Competition
AbstractA standard prediction of neoclassical microeconomics is that with perfect competition, free entry, and atomistic firms producing a homogeneous product, equilibrium finds all firms employing that technology that has minimum average cost. That competition drives out inefficient producers and reduces heterogeneity within industries is, consequently, a commonplace rule of thumb in economic thinking. This paper demonstrates that demand uncertainty is sufficient to produce heterogeneity in the equilibrium employment of production technologies and to permit the coexistence of producers exhibiting different minimum average costs. This heterogeneity is ubiquitous because the conditions for its presence are not stringent. Copyright 1991 by Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 29 (1991)
Issue (Month): 4 (October)
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- Gamal Atallah, 2002.
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- Gamal Atallah, 2002. "Opportunity Costs, Competition, and Firm Selection," CIRANO Working Papers 2002s-74, CIRANO.
- Mills, David E. & Smith, William, 1996. "It pays to be different: Endogenous heterogeneity of firms in an oligopoly," International Journal of Industrial Organization, Elsevier, vol. 14(3), pages 317-329, May.
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