An Econophysical Approach for the Market Structure Determination of an Industry: An Extension of Robert Bishops Formula

Abstract

A precise understanding of the market structure of an industry forms the basis for any entrepreneurial decisions. The combination of Bishop's cross-price elasticity of demand and price elasticity of demand forms the mathematical basis for determining the market structure. However, these formulas are time-independent, which does not adequately capture the complex dynamics of today's economy. This paper attempts a systemic dynamic extension of the cross-price elasticity of demand and the price elasticity of demand by adding a temporal dimension to these formulas. This ensures that entrepreneurial and industry-specific decisions can be made more accurately by following a system-dynamic approach. This paper provides a methodological extension based on Estola's econophysical theory and combining it with Bishop’s approach for determining the market structure of an industry. Econophysics ensures that the temporal dimension is taken into account in economic formulas and therefore providing a more accurate view on current economic issues.