Working Paper: NBER ID: w9528
Authors: Glenn Ellison; Drew Fudenberg
Abstract: This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's [1991b] model of labor market pooling, a heterogeneous-agent version of Pagano's [1989] asset market model, and Ellison, Fudenberg and Mobius's [2002] model of competing auctions.
Keywords: No keywords provided
JEL Codes: R1; G1; E2; C7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market size (L25) | utility of agents (L85) |
| number of agents (L85) | payoff functions (G19) |
| market size (L25) | market impact effect (G14) |
| market impact effect (G14) | tipping behavior (D16) |
| increasing returns effect (D29) | agglomeration (R11) |
| market impact effect (G14) | clustering in overly populated markets (R32) |
| equilibria (D50) | economic concentration (D30) |