Evolution and monopolistic competition in an irrational industry

Guo Ying Luo ()
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Guo Ying Luo: McMaster University

Journal of Bioeconomics, 2019, vol. 21, issue 3, No 2, 157-182

Abstract: 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.

Keywords: Evolution; Natural selection; Irrationality; Monopolistic competition; Survival of the fittest (search for similar items in EconPapers)
JEL-codes: D21 D43 L10 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10818-019-09286-0

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