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A computational model of economies of scale and market share instability

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  • Mazzucato, Mariana

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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  • Mazzucato, Mariana, 1998. "A computational model of economies of scale and market share instability," Structural Change and Economic Dynamics, Elsevier, vol. 9(1), pages 55-83, March.
    • Handle: RePEc:eee:streco:v:9:y:1998:i:1:p:55-83
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    Cited by:

    1. Uwe Cantner, 2016. "Foundations of economic change—an extended Schumpeterian approach," Journal of Evolutionary Economics, Springer, vol. 26(4), pages 701-736, October.
    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. Andreas Pyka & Uwe Cantner & Alfred Greiner & Thomas Kuhn (ed.), 2009. "Recent Advances in Neo-Schumpeterian Economics," Books, Edward Elgar Publishing, number 12982.
    4. Uwe Cantner & Simone Vannuccini, 2017. "Innovation and lock-in," Chapters,in: The Elgar Companion to Innovation and Knowledge Creation, chapter 11, pages 165-181 Edward Elgar Publishing.
    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.
    6. Uwe Cantner & Jens J. Krüger & René Söllner, 2012. "Product quality, product price, and share dynamics in the German compact car market," Industrial and Corporate Change, Oxford University Press, vol. 21(5), pages 1085-1115, October.
    7. Wölfl, Anita, 1998. "Spillover Effects – an Incentive to Cooperate in R&D?," IWH Discussion Papers 79, Halle Institute for Economic Research (IWH).
    8. Wölfl, Anita, 2000. "Spillover Effects and R&D-Cooperations - The Influence of Market Structure," IWH Discussion Papers 122, Halle Institute for Economic Research (IWH).
    9. 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.

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