Knife-Edge or Plateau: When Do Market Models Tip?

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Knife-Edge or Plateau: When Do Market Models Tip?

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Title: Knife-Edge or Plateau: When Do Market Models Tip?
Author: Fudenberg, Drew; Ellison, Glenn

Note: Order does not necessarily reflect citation order of authors.

Citation: Ellison, Glenn, and Drew Fudenberg. 2003. Knife-edge or plateau: when do market models tip? Quarterly Journal of Economics 118, no. 4: 1249-1278.
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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.
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