Abstract
This paper studies Gabaix’s granular hypothesis from an analytical angle in lights of profits and market competition. By establishing the profit pictures of the initial firms of an emerging market and the incumbent firms of a maturing market, it is shown that consumers’ evolving preference help intensify market competition and encourage new firms’ entry into an established oligopoly market. With this profit-based logic, among other results established are precise conditions under which Gabaix’s granular hypothesis is either surely true or definitely not true, followed by relevant empirical confirmations. At the end, several important open questions are posed for future research.
Recommended Citation
Forrest, Jeffrey Yi-Lin
(2022)
"A PROFIT-BASED VIEW OF ECONOMIC GRANULARITY IN THE PERSPECTIVE OF MARKET COMPETITION,"
Pennsylvania Economic Review: Vol. 29:
No.
1, Article 5.
DOI: https://doi.org/10.65193/3067-8080.1040