Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Wednesday, June 10, 2009

Natural Selection, Irrationality and Monopolistic Competition

Posted by D. Daniel Sokol

Guo Ying Luo (McMaster University- DeGroote School of Business) analyzes Natural Selection, Irrationality and Monopolistic Competition.

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.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/06/natural-selection-irrationality-and-monopolistic-competition.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef01156fc0eb49970c

Listed below are links to weblogs that reference Natural Selection, Irrationality and Monopolistic Competition:

Comments

Post a comment