From Walrasian Oligopolies to Natural Monopoly: an Evolutionary Model of Market Structure

Carlos Alós-Ferrer, Ana Ania and Fernando Vega-Redondo

CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: We study a market for a homogeneous good in which firms adjust their production decisions on the basis of imitation, learning from own experience, and local experimentation. For any fixed set of firms (more than one), long run behaviour settles on a symmetric marginal-cost pricing equilibrium. When market entry and exit are allowed, we find a sharp effect of technology on long-run market structure. Specifically, we show that, under decreasing returns and some fixed cost, the market grows to "full capacity" at Walrasian equilibrium; on the other hand, if returns are increasing, the unique long run outcome involves a profit-maximising monopolist.

Keywords: Evolution; mutation; imitation; oligopoly (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Date: 1998-10
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Working Paper: From Walrasian oligopolies to natural monopolyan: An evolutionary model of market structure (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:san:crieff:9805

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