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Heterogeneity under Competition

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  • Lippman, Steven A
  • McCardle, Kevin F
  • Rumelt, Richard P

Abstract

A 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.

Suggested Citation

  • Lippman, Steven A & McCardle, Kevin F & Rumelt, Richard P, 1991. "Heterogeneity under Competition," Economic Inquiry, Western Economic Association International, vol. 29(4), pages 774-782, October.
    • Handle: RePEc:oup:ecinqu:v:29:y:1991:i:4:p:774-82
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    Cited by:

    1. Gamal Atallah, 2006. "Opportunity Costs, Competition, and Firm Selection," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 409-430.
    2. 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.
    3. Patricia M. Fairfield & Sundaresh Ramnath & Teri Lombardi Yohn, 2009. "Do Industry‐Level Analyses Improve Forecasts of Financial Performance?," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 147-178, March.
    4. Krysiak, Frank C., 2011. "Environmental regulation, technological diversity, and the dynamics of technological change," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 528-544, April.

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