Shift or Pivot? Market Entry and Exit With Linear Supply and Demand Curves

Joseph G. Eisenhauer

The American Economist, 2024, vol. 69, issue 1, 168-186

Abstract: Textbooks commonly misrepresent the effects of market entry and exit by consumers and producers as parallel shifts of linear market demand and supply curves. Such portrayals are inconsistent with the underlying premise that a market-level curve is the horizontal summation of individual-level curves. A more accurate depiction is a pivot: entry flattens (and exit steepens) a market-level curve. Reconceiving the effects of entry and exit as pivoting, rather than shifting, the curve has important implications for own-price elasticities, consumer surplus, producer surplus, the incidence of taxation, and the competitive market adjustment to a long run equilibrium. JEL codes: A22, B40, D01

Keywords: market entry; pivot; elasticity; consumer surplus; producer surplus; tax incidence; long run equilibrium (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:amerec:v:69:y:2024:i:1:p:168-186

DOI: 10.1177/05694345231209228

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