Quarterly Journal of Economics Vol. 118 No. 4 2003
Knife-Edge or Plateau: When Do Market Models Tip?
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 model of labor market pooling, a heterogeneous-agent version of Pagano's asset market model, and Ellison, Fudenberg, and Möbius' model of competing auctions.
- DOI
- 10.1162/003355303322552793
- Volume
- 118
- Issue
- 4
- Pages
- 1249-1278
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref