Industry Dynamics: Foundations For Models With An Infinite Number Of Firms

This paper explores the connection between three important threads of economic research offering different approaches to studying the dynamics of an industry with heterogeneous firms. Finite models of the form capture the dynamics of a finite number of heterogeneous firms as they compete in an industry, and are typically analyzed using the concept of Markov Perfect Equilibrium (MPE). Infinite models of the form consider an infinite number of infinitesimal firms, and are typically analyzed using the concept of Stationary Equilibrium (SE). A third approach uses Oblivious Equilibrium (OE), which maintains the simplifying benefits of an infinite model but within the more realistic setting of a finite model.