A competitive, dynamic model of entry into a new industry is set up and both its positive and normative aspects are studied. The main assumptions are that entry is sequential, that it occurs under imperfect information on the size of the market and that better information becomes available as time goes on. The gradual improvement in information is due to the fact that later waves of entrants are able to observe the profitability of earlier entrants. The major results reported here (under suitable restrictions) are that the equilibrium rate of entry is monotonically decreasing over time, and that—at any given point in time—it is smaller than the socially optimal one.

We investigate the ability of the price system to aggregate private information in a market of uncertain size and where set-up costs are incurred by entrants. It is shown that the equilibrium is random even when the totality of private information is so large that aggregate uncertainty is virtually non-existent. In particular, the limiting equilibrium does not approach the full-information, Walrasian outcome. Hence, the model identifies a technological factor (increasing returns) which gives rise to informational losses.

Equilibrium price distributions (for a homogeneous product) consistent with individual incentives are investigated. They arise in informationally imperfect markets in which the only primitive datum is the distribution of search costs. It is shown that single, multi- and continuous price distributions are all viable long-run phenomena depending on the nature of search costs. A method for computing equilibrium price distributions is also provided.

This paper analyzes a decentralized process for the diffusion of knowledge. In equilibrium, the economy converges from an initial distribution of knowledge over agents to the steady-state distribution, which is unique. Because of the public good aspect of information, too little learning takes place, and ideas are implemented too early. The key difference between earlier formulations of search externalities by Diamond, Mortensen, and Spence on the one hand, and our own on the other, is that here spillovers of knowledge depend not only on how hard people are trying, but also on the differences in what they know: if all of us know the same thing, we cannot learn from each other. The model also addresses the following two substantive questions: first, the relationship between inequality and growth, noted some time ago by Kuznets, and second, the effect on growth of improvements in the communication technology.

This paper explores a model of innovation and spatial competition over time. A key implication of the paper is that firms' size is positively autocorrelated across time. The mechanism that generates this persistence works only in heterogenous-product markets and is based on the idea that larger firms possess better information about the design of future products. Some corroborating evidence is cited.

We explore entry into a foreign market with uncertain demand growth. A multinational can serve the foreign demand by two modes, or by a combination thereof: it can export its products, or it can create productive capacity via foreign direct investment (FDI). The advantage of FDI is that it allows for lower marginal cost than exporting does. The disadvantage is that FDI is irreversible and, hence, entails the risk of creating under-utilized capacity in the case that the market turns out to be small. The presence of demand uncertainty and irreversibility gives rise to an interior solution, where the multinational, under certain conditions, both exports its products and does FDI.