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Evolution and monopolistic competition in an irrational industry

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  • Guo Ying Luo

    (McMaster University)

Abstract

This paper builds an evolutionary model of an industry where firms produce differentiated products. Firms have different average cost functions and faces different demand functions. Firms are assumed to be totally irrational in the sense that firms enter the industry regardless of the existence of profits; firms’ outputs are randomly determined rather than generated from profit maximization problems; and firms exit the industry if their wealth is negative. This paper proves analytically that without purposive profit maximization assumption, monopolistic competition still evolves in the long run. The only long run survivors are those that possess the most efficient technology, face the most favorable market conditions and produce at their profit maximizing outputs. This paper modifies and supports the classic argument for the derivation of monopolistic competition.

Suggested Citation

  • Guo Ying Luo, 2019. "Evolution and monopolistic competition in an irrational industry," Journal of Bioeconomics, Springer, vol. 21(3), pages 157-182, October.
    • Handle: RePEc:kap:jbioec:v:21:y:2019:i:3:d:10.1007_s10818-019-09286-0
    DOI: 10.1007/s10818-019-09286-0
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    References listed on IDEAS

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    Cited by:

    1. Marc Fleurbaey & Grégory Ponthière, 2021. "The stakeholder corporation and social welfare," Working Papers hal-03426120, HAL.

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    More about this item

    Keywords

    Evolution; Natural selection; Irrationality; Monopolistic competition; Survival of the fittest;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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