Selection of Boundedly Rational Firms and the Allocation of Resources
AbstractI study how savers allocate funds between boundedly rational firms which follow simple pricing rules. Firms need cash to pay their inputs in advance, and savers-shareholders allocate cash between them so as to maximize their rate of return. When the rate of return on each firm is observed, there are multiple equilibria, and some degree of monopoly power is sustained. However, the economy gets close to the Walrasian equilibrium when the availability of funds goes to infinity. Multiple equilibria also arise when there are âentrantsâ with unobservable rates of return. In an equilibrium where entrants are not funded, savers invest in incumbents because those entrants which will divert customers from incumbents are likely to be excess underpricers.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 417.
Date of creation: Oct 2006
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Other versions of this item:
- Saint-Paul, Gilles, 2006. "Selection of Boundedly Rational Firms and the Allocation of Resources," CEPR Discussion Papers 5928, C.E.P.R. Discussion Papers.
- D4 - Microeconomics - - Market Structure and Pricing
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- Z1 - Other Special Topics - - Cultural Economics
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