The industry supply function and the long-run competitive equilibrium with heterogeneous firms

DOI10.1016/J.JET.2019.104946zbMATH Open1426.91155arXiv1612.09549OpenAlexW2980171225WikidataQ127112352 ScholiaQ127112352MaRDI QIDQ2334136FDOQ2334136

Ignacio Esponda, Demian Pouzo

Publication date: 7 November 2019

Published in: Journal of Economic Theory (Search for Journal in Brave)

Abstract: In developing the theory of long-run competitive equilibrium (LRCE), Marshall (1890) used the notion of a representative firm. The identity of this firm, however, remained unclear. Subsequent theory either focused on the case where all firms are identical or else incorporated heterogeneity but disregarded the notion of a representative firm. Using Hopenhayn's (1992) model of competitive industry dynamics, we extend the theory of LRCE to account for heterogeneous firms and show that the long-run supply function can indeed be characterized as the solution to the minimization of a representative average cost function.

Full work available at URL: https://arxiv.org/abs/1612.09549

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zbMATH Keywords

long-run competitive equilibriumrepresentative firm

Mathematics Subject Classification ID

Special types of economic equilibria (91B52)

Cites Work

• The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity
• Selection and the Evolution of Industry
• Entry, Exit, and firm Dynamics in Long Run Equilibrium
• Investment Under Uncertainty
• Markov-Perfect Industry Dynamics: A Framework for Empirical Work
• THE TWO‐SECTOR VON THÜNEN ORIGINAL MARGINAL PRODUCTIVITY MODEL OF CAPITAL; AND BEYOND: COMMENT

Cited In (2)

• Nonparametric instrumental regression with two-way fixed effects
• Firm and industry level profit efficiency analysis using absolute and uniform shadow prices

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