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Micro-Level Adaptation, Macro-Level Selection, and the Dynamics of Market Partitioning

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  • César García-Díaz
  • Arjen van Witteloostuijn
  • Gábor Péli

Abstract

This paper provides a micro-foundation for dual market structure formation through partitioning processes in marketplaces by developing a computational model of interacting economic agents. We propose an agent-based modeling approach, where firms are adaptive and profit-seeking agents entering into and exiting from the market according to their (lack of) profitability. Our firms are characterized by large and small sunk costs, respectively. They locate their offerings along a unimodal demand distribution over a one-dimensional product variety, with the distribution peak constituting the center and the tails standing for the peripheries. We found that large firms may first advance toward the most abundant demand spot, the market center, and release peripheral positions as predicted by extant dual market explanations. However, we also observed that large firms may then move back toward the market fringes to reduce competitive niche overlap in the center, triggering nonlinear resource occupation behavior. Novel results indicate that resource release dynamics depend on firm-level adaptive capabilities, and that a minimum scale of production for low sunk cost firms is key to the formation of the dual structure.

Suggested Citation

  • César García-Díaz & Arjen van Witteloostuijn & Gábor Péli, 2015. "Micro-Level Adaptation, Macro-Level Selection, and the Dynamics of Market Partitioning," PLOS ONE, Public Library of Science, vol. 10(12), pages 1-27, December.
  • Handle: RePEc:plo:pone00:0144574
    DOI: 10.1371/journal.pone.0144574
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    References listed on IDEAS

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    6. Christophe Boone & Arjen van Witteloostuijn, 2004. "A unified theory of market partitioning: an integration of resource-partitioning and sunk cost theories," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 13(5), pages 701-725, October.
    7. Myong-Hun Chang, 2011. "Agent-based Modeling and Computational Experiments in Industrial Organization: Growing Firms and Industries in silico," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 37(1), pages 28-34.
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    1. César García-Díaz & Gábor Péli & Arjen van Witteloostuijn, 2020. "The coevolution of the firm and the product attribute space," PLOS ONE, Public Library of Science, vol. 15(6), pages 1-25, June.
    2. Xu, Jin & Peng, Biyu & Cornelissen, Joep, 2021. "Modelling the network economy: A population ecology perspective on network dynamics," Technovation, Elsevier, vol. 102(C).
    3. Marc van de Wardt & Joost Berkhout & Floris Vermeulen, 2017. "Ecologies of ideologies: Explaining party entry and exit in West-European parliaments, 1945–2013," European Union Politics, , vol. 18(2), pages 239-259, June.

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