TY  - JOUR
AU  - Ellison,Glenn
AU  - Fudenberg,Drew
TI  - Knife Edge of Plateau: When Do Market Models Tip?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9528
PY  - 2003
Y2  - March 2003
UR  - http://www.nber.org/papers/w9528
L1  - http://www.nber.org/papers/w9528.pdf
N1  - Author contact info:
Glenn Ellison
Department of Economics
Massachusetts Institute of Technology
50 Memorial Drive, E52-380A
Cambridge, MA 02142-1347
Tel: 617/253-8702
Fax: 617/253-1330
E-Mail: gellison@mit.edu

Drew Fudenberg
Department of Economics
Harvard Unviersity
1805 Cambridge St
Cambridge, MA  02138
E-Mail: dfudenberg@harvard.edu
AB  - 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 M”bius's [2002] model of competing auctions.
ER  -