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HETEROGENEITY UNDER COMPETITION
Author(s) -
LIPPMAN STEVEN A.,
MCCARDLE KEVIN F.,
RUMELT RICHARD P.
Publication year - 1991
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1991.tb00861.x
Subject(s) - economics , competition (biology) , rule of thumb , homogeneous , microeconomics , product (mathematics) , product differentiation , production (economics) , free entry , symmetric equilibrium , industrial organization , cournot competition , equilibrium selection , game theory , computer science , ecology , geometry , mathematics , repeated game , algorithm , biology , physics , thermodynamics
A standard prediction of neoclassical microeconomics is that with perfect competition, free entry, and atomistic firms producing a homogeneous product, equilibrium finds all firms employing that technology which has minimum average cost. That competition drives out inefficient producers and reduces heterogeneity within industries is, consequently, a commonplace rule of thumb in economic thinking. This paper demonstrates that demand uncertainty is sufficient to produce heterogeneity in the equilibrium employment of production technologies and to permit the coexistence of producers exhibiting different minimum average costs. This heterogeneity is ubiquitous because the conditions for its presence are not stringent.