Knife Edge of Plateau: When Do Market Models Tip? / Glenn Ellison, Drew Fudenberg.

Format:

Book

Author/Creator:

Ellison, Glenn.

Contributor:

National Bureau of Economic Research.

Fudenberg, Drew.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9528.

NBER working paper series no. w9528

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Knife Edge of Plateau

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

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.

Notes:

Print version record

March 2003.