Natural Selection, Irrationality and Monopolistic Competition

Guo Ying Luo ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper builds an evolutionary model of an industry where firms produce differentiated products. Firms have different average cost functions and 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. It shows 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; Market Rationality (search for similar items in EconPapers)
JEL-codes: D21 D43 L11 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-com, nep-evo, nep-mic and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:15357

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