Evolutionary Model of Non-Durable Markets

Kaldasch, Joachim (2011): Evolutionary Model of Non-Durable Markets.

Abstract

Presented is an evolutionary model of consumer non-durable markets, which is an extension of a previously published paper on consumer durables. The model suggests that the repurchase process is governed by preferential growth. Applying statistical methods it can be shown that in a competitive market the mean price declines according to an exponential law towards a natural price, while the corresponding price distribution is approximately given by a Laplace distribution for independent price decisions of the manufacturers. The sales of individual brands are determined by a replicator dynamics. As a consequence the size distribution of business units is a lognormal distribution, while the growth rates are also given by a Laplace distribution. Moreover products with a higher fitness replace those with a lower fitness according to a logistic law. Most remarkable is the prediction that the price distribution becomes unstable at market clearing, which is in striking difference to the Walrasian picture in standard microeconomics. The reason for this statement is that competition between products exists only if there is an excess supply, causing a decreasing mean price. When, for example by significant events, demand increases or is equal to supply, competition breaks down and the price exhibits a jump. When this supply shortage is accompanied with an arbitrage for traders, it may even evolve into a speculative bubble. Neglecting the impact of speculation here, the evolutionary model can be linked to a stochastic jump-diffusion model.

• Item Type: MPRA Paper
• Language: English
• Keywords: non-durables; evolutionary economics; economic growth; price distribution; Laplace distribution; replicator equation; firm growth; growth rate distribution; competition; jump-diffusion model
• Subjects: D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; C - Mathematical and Quantitative Methods > C0 - General > C00 - General; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; A - General Economics and Teaching > A1 - General Economics > A10 - General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General; D - Microeconomics > D0 - General > D00 - General; D - Microeconomics > D9 - Intertemporal Choice > D92 - Intertemporal Firm Choice, Investment, Capacity, and Financing; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development

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