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Abstract

This paper presents a long run analysis of industry behavior allowing for entry and exit, and cost heterogeneity among firms. Treating the number of firms as endogenous provides linkages between firms’ conduct (reflecting the exercise of market power) and market structure. In steady state equilibrium, the implications of cost structure for market equilibrium price, firms’ conduct and industry concentration are investigated. We derive the firms’ conduct that emerges in stationary equilibrium from evolutionary selection over time. We also show how globalization helps reduce the firms’ exercise of market power, increase the responsiveness of aggregate supply, and reduce price sensitivity to shocks.

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