A Unified Axiomatic Theory of Microeconomics: Market Structure and Equilibrium

Du, G. (2025): A Unified Axiomatic Theory of Microeconomics: Market Structure and Equilibrium.

Abstract

We propose a unified microeconomic theory that takes the behavioral rules of firms in real markets as the endogenous mechanism through which market structures are generated, replacing the standard practice of imposing perfect competition, monopoly, and other market forms as exogenous assumptions. Under a set of minimal axioms (consumer utility maximization, firm profit maximization, firm entry/exit mechanisms, and market clearing) and by introducing realistic cost and demand structures (firm-level cost heterogeneity, fixed costs, and demand elasticity, among others), pricing behavior and market structures long treated as exogenous (such as perfect competition and monopoly) are derived endogenously as equilibrium outcomes of firms' profit-maximizing behavior. Within a single framework, the theory nests traditional cost and marginal analysis, game-theoretic approaches to imperfect competition, and the Walrasian general equilibrium model; different regions of the parameter space naturally yield equilibrium outcomes corresponding to perfect competition, monopoly, monopolistic competition, and competitive-fringe structures. Our analysis shows that perfect competition is only a highly symmetric and intrinsically unstable equilibrium point: even small cost differences suffice to push the system toward more common monopoly or oligopoly configurations, while positive feedback mechanisms render these structures stable, helping to explain why market power is not easily competed away. Under empirically observable premises, the theory coherently derives the principal market forms and, in doing so, clarifies the domains of applicability of various classic models. It can also be used to predict which market structures industries will evolve toward under given conditions, providing a unified and operational theoretical foundation for empirical research, industrial policy, and firms' business and competitive strategy decision-making.

• Item Type: MPRA Paper
• Language: English
• Keywords: Unified Market Structure Theory; Endogenous Structural Evolution; Imperfect Competition; Unified General Equilibrium Framework; Network Externalities and Feedback Mechanisms; Pareto Optimality under Heterogeneity
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D41 - Perfect Competition; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D42 - Monopoly; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D50 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D85 - Network Formation and Analysis: Theory; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L12 - Monopoly ; Monopolization Strategies; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets

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