Abstract

http://ssrn.com/abstract=1006027
 
 

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Innovation, Price Dispersion, and Emergent Increasing Returns to Scale


David M. Levy


George Mason University - Center for Study of Public Choice

Michael D. Makowsky


Johns Hopkins University - Department of Emergency Medicine, Center for Advanced Modeling in the Social, Behavioral, and Health Sciences; Hopkins Population Center

August 9, 2007


Abstract:     
We present a model in which price dispersion allows long run increasing returns to scale to emerge from a competitive short run. The model hinges upon turnover in the productive technology-leading firm, price dispersion resultant of Stigler's logic of rational search and limited excludability of knowledge. Bankruptcy occurs in a form similar to the gambler's ruin, delayed by cash buffer stocks. The model requires no entry or replacement of failed firms. The number of active firms in a market reaches a stationarity increasing with, and contingent on, search costs.

Number of Pages in PDF File: 24

Keywords: innovation, increasing returns to scale, price dispersion, search

JEL Classification: C63, L11, O33, D83

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Date posted: August 13, 2007  

Suggested Citation

Levy, David M. and Makowsky, Michael D., Innovation, Price Dispersion, and Emergent Increasing Returns to Scale (August 9, 2007). Available at SSRN: http://ssrn.com/abstract=1006027 or http://dx.doi.org/10.2139/ssrn.1006027

Contact Information

David M. Levy (Contact Author)
George Mason University - Center for Study of Public Choice ( email )
MSN 1d3 Carow Hall
4400 University
Fairfax, VA 22030
United States
Michael D. Makowsky
Johns Hopkins University - Department of Emergency Medicine, Center for Advanced Modeling in the Social, Behavioral, and Health Sciences ( email )
Davis Building, Suite 3220
5801 Smith Avenue
Baltimore, MD 21209
United States
Hopkins Population Center ( email )
Baltimore, MD 21218
United States
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