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A Computational Model of Economies of Scale and Market Share Instability

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  • Mariana Mazzucato

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.

Suggested Citation

  • Mariana Mazzucato, 1997. "A Computational Model of Economies of Scale and Market Share Instability," Research in Economics 97-06-054e, Santa Fe Institute.
    • Handle: RePEc:wop:safire:97-06-054e
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    2. 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.
    3. Jan Schulz & Daniel M. Mayerhoffer, 2021. "Equal chances, unequal outcomes? Network-based evolutionary learning and the industrial dynamics of superstar firms," Journal of Business Economics, Springer, vol. 91(9), pages 1357-1385, November.
    4. Wölfl, Anita, 2000. "Spillover Effects and R&D-Cooperations - The Influence of Market Structure," IWH Discussion Papers 122/2000, Halle Institute for Economic Research (IWH).
    5. Uwe Cantner, 2017. "Foundations of Economic Change: An Extended Schumpeterian Approach," Economic Complexity and Evolution, in: Andreas Pyka & Uwe Cantner (ed.), Foundations of Economic Change, pages 9-49, Springer.
    6. Andreas Pyka & Uwe Cantner & Alfred Greiner & Thomas Kuhn (ed.), 2009. "Recent Advances in Neo-Schumpeterian Economics," Books, Edward Elgar Publishing, number 12982, June.
    7. Wölfl, Anita, 1998. "Spillover Effects – an Incentive to Cooperate in R&D?," IWH Discussion Papers 79/1998, Halle Institute for Economic Research (IWH).
    8. Uwe Cantner & Ivan Savin & Simone Vannuccini, 2019. "Replicator dynamics in value chains: explaining some puzzles of market selection," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(3), pages 589-611.
    9. Tomasz Zema & Adam Sulich, 2022. "Models of Electricity Price Forecasting: Bibliometric Research," Energies, MDPI, vol. 15(15), pages 1-18, August.
    10. Ljubica Nedelkoska, 2010. "Occupations at risk: The task content and job stability," Jena Economics Research Papers 2010-024, Friedrich-Schiller-University Jena.
    11. Luca Fontanelli, 2023. "Theories of market selection: a survey," LEM Papers Series 2023/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    12. Mundt, Philipp & Cantner, Uwe & Inoue, Hiroyasu & Savin, Ivan & Vannuccini, Simone, 2021. "Market selection in global value chains," BERG Working Paper Series 170, Bamberg University, Bamberg Economic Research Group.
    13. Savin, I., 2020. "Studying market selection in Russia and abroad: Measurement problems, national specificity and stimulating methods," Journal of the New Economic Association, New Economic Association, vol. 48(4), pages 197-204.
    14. Uwe Cantner & Simone Vannuccini, 2017. "Innovation and lock-in," Chapters, in: Harald Bathelt & Patrick Cohendet & Sebastian Henn & Laurent Simon (ed.), The Elgar Companion to Innovation and Knowledge Creation, chapter 11, pages 165-181, Edward Elgar Publishing.
    15. 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.
    16. Andrea Bonaccorsi & Paola Giuri, 2003. "Increasing Returns and Network Structure in the Evolutionary Dynamics of Industries," Chapters, in: Pier Paolo Saviotti (ed.), Applied Evolutionary Economics, chapter 3, Edward Elgar Publishing.

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