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The Market Structure Simulation of Heterogenous Firms

Author

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  • Arūnas Burinskas

    (Department of Business Technologies and Entrepreneurship, Vilnius Gediminas Technical University, Saulėtekio Av. 11, LT-10223 Vilnius, Lithuania
    Department of Economic Policy, Vilnius University, Saulėtekio Av. 9, LT-10222 Vilnius, Lithuania)

  • Manuela Tvaronavičienė

    (Department of Business Technologies and Entrepreneurship, Vilnius Gediminas Technical University, Saulėtekio Av. 11, LT-10223 Vilnius, Lithuania)

Abstract

The paper aims at the need for economic policy evaluators to assess how and whether specific measures can influence the development of markets in a way that achieves greater wealth. Therefore, this study concentrates on well-documented firms’ heterogeneity that significantly impact their ability to compete, influence the market structure, and decide to participate in trade. For the initial attributes and features of the simulated model, we chose Ottaviano demand function. However, we took a different approach regarding demand and its elasticities in the market by employing distributional functions to model the market demand and the demand for each firm’s product. Allowing for the evolution of the market structure, the model reveals the importance of endowment factors and suggests the crucial role of firms’ abilities to compete. What is more important—it affects the time needed for the market structure formation. Although the model does not track all the aspects of a firm’s heterogeneity, it might guide economic policy makers to not only support the business in increasing its capabilities but keep it struggling over the competition to impede the collecting of Ricardian rents.

Suggested Citation

  • Arūnas Burinskas & Manuela Tvaronavičienė, 2021. "The Market Structure Simulation of Heterogenous Firms," Economies, MDPI, vol. 10(1), pages 1-22, December.
    • Handle: RePEc:gam:jecomi:v:10:y:2021:i:1:p:9-:d:712795
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    References listed on IDEAS

    as
    1. Marc J. Melitz & Stephen J. Redding, 2015. "New Trade Models, New Welfare Implications," American Economic Review, American Economic Association, vol. 105(3), pages 1105-1146, March.
    2. Marc J. Melitz & Giancarlo I. P. Ottaviano, 2021. "Market Size, Trade, and Productivity," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 4, pages 87-108, World Scientific Publishing Co. Pte. Ltd..
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