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From Walrasian Oligopolies to Natural Monopoly: an Evolutionary Model of Market Structure

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  • Carlos Alos-Ferrer
  • Ana B. Ania
  • Fernando Vega-Redondo

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 behaviour settles on a symmetric marginal-cost pricing equilibrium. When market entry and exit are allowed, we find a sharp effect of technology on long-run market structure. Specifically, we show that, under decreasing returns and some fixed cost, the market grows to "full capacity" at Walrasian equilibrium; on the other hand, if returns are increasing, the unique long run outcome involves a profit-maximising monopolist.

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Bibliographic Info

Paper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9805.

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Date of creation: Oct 1998
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Handle: RePEc:san:crieff:9805

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Related research

Keywords: Evolution; mutation; imitation; oligopoly;

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References

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  1. Arthur J Robson & Fernando Vega-Redondo, 1999. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Levine's Working Paper Archive 2112, David K. Levine.
  2. Novshek, William, 1980. "Cournot Equilibrium with Free Entry," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 473-86, April.
  3. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  4. Schaffer, Mark E., 1989. "Are profit-maximisers the best survivors? : A Darwinian model of economic natural selection," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 29-45, August.
  5. Fernando Vega Redondo, 1996. "The evolution of walrasian behavior," Working Papers. Serie AD 1996-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  7. Rhode, Paul & Stegeman, Mark, 2001. "Non-Nash equilibria of Darwinian dynamics with applications to duopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 415-453, March.
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Cited by:
  1. Alos-Ferrer, Carlos & Ania, Ana B. & Schenk-Hoppe, Klaus Reiner, 2000. "An Evolutionary Model of Bertrand Oligopoly," Games and Economic Behavior, Elsevier, vol. 33(1), pages 1-19, October.

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