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A Computational Model of Economies of Scale and Market Share Instability

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  • Mariana Mazzucato

Abstract

Replicator dynamics and computer simulation techniques are used to construct a reduced form model which explores negative and positive feedback processes between firm costs and market shares embodied in the dynamics of (dis)economies of scale. After reproducing the standard equilibrium results for decreasing returns to scale (unique equilibrium) and increasing returns to scale (multiple equilibrium) a more dynamic formulation of returns to scale is introduced where scale affects not the direction of costs but the rate of cost reduction. Here we find that negative feedback does not produce self-correcting stabilizing forces in market shares but rather instability and turbulence. Life-cycle phenomena are explored by combining positive and negative feedback in a firm's cost function. The alternating periods of market share stability and instability which emerge from the simulations are compared to empirical regularities in market share patterns.

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Bibliographic Info

Paper provided by Santa Fe Institute in its series Research in Economics with number 97-06-054e.

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Date of creation: Jun 1997
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Handle: RePEc:wop:safire:97-06-054e

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Related research

Keywords: market share; innovation; replicator equations; simulation; industry life-cycle;

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References

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Cited by:
  1. Anita Wölfl, 2000. "Spillover Effects and R&D-Cooperations - The Influence of Market Structure," IWH Discussion Papers 122, Halle Institute for Economic Research.
  2. Torben Klarl, 2013. "Market dynamics, dynamic resource management and environmental policy in the context of (strong) sustainability," Journal of Evolutionary Economics, Springer, vol. 23(4), pages 861-888, September.
  3. Uwe Cantner & Jens J. Krüger & Rene Söllner, 2010. "Product Quality, Product Price, and Share Dynamics in the German Compact Car Market," Jena Economic Research Papers 2010-024, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Andrea Bonaccorsi & Paola Giuri, 1999. "Increasing returns and network structure in the evolutionary dynamics of industries," LEM Papers Series 1999/12, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. Rotheli, Tobias F., 2008. "Estimation of evolutionary models as a tool for research in industrial organization," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 138-148, February.

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