Knife Edge of Plateau: When Do Market Models Tip?
32 Pages Posted: 6 Mar 2003 Last revised: 16 Jul 2022
Date Written: March 2003
Abstract
This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's [1991b] model of labor market pooling, a heterogeneous-agent version of Pagano's [1989] asset market model, and Ellison, Fudenberg and Mobius's [2002] model of competing auctions.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach
By Glenn Ellison and Edward L. Glaeser
-
Geographic Concentration as a Dynamic Process
By Guy Dumais, Glenn Ellison, ...
-
Testing for Localization Using Micro-Geographic Data
By Gilles Duranton and Henry G. Overman