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On Long-Run Industry Behavior Under Heterogeneous Firms

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  • Chavas, Jean-Paul

Abstract

This paper presents a long run analysis of industry behavior allowing for entry and exit, and cost heterogeneity among firms. Treating the number of firms as endogenous provides linkages between firms’ conduct (reflecting the exercise of market power) and market structure. In steady state equilibrium, the implications of cost structure for market equilibrium price, firms’ conduct and industry concentration are investigated. We derive the firms’ conduct that emerges in stationary equilibrium from evolutionary selection over time. We also show how globalization helps reduce the firms’ exercise of market power, increase the responsiveness of aggregate supply, and reduce price sensitivity to shocks.

Suggested Citation

  • Chavas, Jean-Paul, 2006. "On Long-Run Industry Behavior Under Heterogeneous Firms," Working Papers 201526, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    • Handle: RePEc:ags:uwfswp:201526
    DOI: 10.22004/ag.econ.201526
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    References listed on IDEAS

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    6. David Genesove & Wallace P. Mullin, 1998. "Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 355-377, Summer.
    7. Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
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