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This chapter examines whether the concept of the perfectly competitive equilibrium would be valid if the firms are totally irrational in the industry in the sense that they cannot maximize or simply are not interested in maximizing their profits. This chapter begins with the motivation of the issue. Then an evolutionary model of an industry is constructed to prove analytically that the industry converges in probability to perfect competition as firms gets infinitesimally small relative to the market, as the fixed cost of entry gets sufficiently small and as time gets sufficiently large. Furthermore, in the long run, the only survivors are those who produce at the minimum efficient scale. No potential entrant can make a positive profit by entering the industry.
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- Evolution, Irrationality, and Perfectly Competitive Equilibrium
Guo Ying Luo
- Springer New York
- Chapter 2
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