Rational expectations and monopolistic trades

Patrick Leoni ()

Journal of Economics, 2012, vol. 107, issue 2, 129-140

Abstract: We argue that the use of rational expectations in monopolistic markets, as typically done, is overly restrictive because the rationale of this approach is not met in those markets. In a model that encompasses a general equilibrium framework, we consider a monopolist (a producer) with subjective beliefs that endogenously hedges against fluctuations in input prices in a complete market. We introduce a notion of entropy of beliefs, and we characterize long-run optimal rational investments with this entropy. For irrational beliefs, we show that long-run profits are a decreasing function of this entropy. However, long-run profits always remain positive as long as the entropy remains finite despite the Market Selection Hypothesis that would predict long-run 0-profit. Copyright Springer-Verlag 2012

Keywords: Market selection hypothesis; Survival; Monopoly competition; Heterogeneous beliefs; G3; D82; D84 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00712-012-0279-3 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:107:y:2012:i:2:p:129-140

DOI: 10.1007/s00712-012-0279-3

Access Statistics for this article

Journal of Economics is currently edited by Giacomo Corneo

More articles in Journal of Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().