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A Statistical Equilibrium Model of Competitive Firms

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Author Info
Irle, Albrecht
Milakovic, Mishael
Alfarano, Simone
Kauschke, Jonas

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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.

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File URL: http://hdl.handle.net/10419/22055
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Publisher Info
Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,10.

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Date of creation: 2008
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Handle: RePEc:zbw:cauewp:7362

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Statistical equilibrium; maximum entropy principle; diffusion process; stochastic differential equation; competition; profit rate;

Find related papers by JEL classification:
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: 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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References listed on IDEAS
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  1. Vickers, John, 1995. "Concepts of Competition," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 1-23, January. [Downloadable!] (restricted)
  2. Giulio Bottazzi & Angelo Secchi, 2006. "Explaining the Distribution of Firm Growth Rates," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 235-256, Summer.
    Other versions:
  3. Castaldi, Carolina & Milakovic, Mishael, 2007. "Turnover activity in wealth portfolios," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 537-552, July. [Downloadable!] (restricted)
    Other versions:
  4. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542. [Downloadable!]
  5. Stutzer, Michael, 1996. " A Simple Nonparametric Approach to Derivative Security Valuation," Journal of Finance, American Finance Association, vol. 51(5), pages 1633-52, December. [Downloadable!] (restricted)
  6. George J. Stigler, 1957. "Perfect Competition, Historically Contemplated," Journal of Political Economy, University of Chicago Press, vol. 65, pages 1. [Downloadable!] (restricted)
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This page was last updated on 2009-11-22.

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