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A Statistical Equilibrium Model of Competitive Firms

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  • Irle, Albrecht
  • Milaković, Mishael
  • Alfarano, Simone
  • Kauschke, Jonas

Abstract

We argue that the complex interactions of competitive heterogeneous firms lead to a statistical equilibrium distribution of firms? profit rates, which turns out to be an exponential power (or Subbotin) distribution. Moreover, we construct a diffusion process that has the Subbotin distribution as its stationary probability density, leading to a phenomenologically inspired interpretation of variations in the shape parameter of the statistical equilibrium distribution. Our main finding is that firms? idiosyncratic efforts and the tendency for competition to equalize profit rates are two sides of the same coin.

Suggested Citation

  • Irle, Albrecht & Milaković, Mishael & Alfarano, Simone & Kauschke, Jonas, 2008. "A Statistical Equilibrium Model of Competitive Firms," Economics Working Papers 2008-10, Christian-Albrechts-University of Kiel, Department of Economics.
    • Handle: RePEc:zbw:cauewp:7362
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    More about this item

    Keywords

    Statistical equilibrium; maximum entropy principle; diffusion process; stochastic differential equation; competition; profit rate;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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