2023/22 | LEM Working Paper Series | ||||||||||||||||
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Theories of market selection: a survey |
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Luca Fontanelli |
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Keywords | |||||||||||||||||
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Selection; competition; monopolistic competition; quasi-replicator; Gibrat's Law.
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JEL Classifications | |||||||||||||||||
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L10, D20, D40
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Abstract | |||||||||||||||||
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We provide a survey of the main mechanisms of market selection used in economics. We gather
them in three theoretical paradigms (rational equilibrium, Simonesque and evolutionary), that
we try to reconcile in terms of underlying laws of selection. We show that the three paradigms
have been converging in their focus on firm heterogeneity and increasing returns. These selec-
tion mechanisms are however fostered by theories which differ in terms of sources of increasing
returns, generating mechanisms of firm heterogeneity, firm rationality and emphasis on equilibrium
states vis-a-vis out-of-equilibrium dynamics. Our discussion suggests that the convergence
between the three theoretical paradigms is taking place in the direction of research, which is
aimed at the replication of empirical patterns related to firm heterogeneity, rather than in the
theory underlying selection mechanisms.
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