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THE SEPARATION OF OWNERSHIP FROM CONTROL IN GOVERNMENT RENDERS POLITICIANS AND BUREAUCRATS ONLY PARTLY SUBSERVIENT TO THE DEMANDS OF CONSUMER/TAXPAYERS. AT THE NATIONAL LEVEL OF GOVERNMENT COMPETITION VIA THE ELECTORAL PROCESS LEAVES POLITICIANS AND BUREAUCRATS CONSIDERABLE LATITUDE BECAUSE OF THE RATIONAL IGNORANCE EFFECT (TULLOCK, 1967). BEGINNING WITH TIEBOUT (1956), IT HAS BEEN ARGUED THAT AT THE LOCAL LEVEL OF GOVERNMENT COMPETITION AMONG JURISDICTIONS RESTRICTS A BUREAUCRAT'S ABILITY TO PURSUE POLICIES WHICH DO NOT REFLECT THE DESIRES OF TAXPAYERS AND TO SHIRK THE MONITORING OF PUBLIC SERVICE PROVISION. RECENT THEORETICAL WORK BY WAGNER (1974) AND EPPLE AND ZELENITZ (1981) HAS SHOWN THAT JURISDICTIONAL COMPETITION IS INDEED EXPECTED TO ESTABLISH CONSTRAINTS ON THE CHOICES MADE BY LOCAL GOVERNMENTS AND TO INDUCE COST EFFECTIVENESS IN THE PROVISION OF LOCAL PUBLIC SERVICES. EPPLE AND ZELENITZ FOUND THAT SUCH CONSTRAINTS ARE EXPECTED TO EXIST, BUT ARE NOT SUFFICIENT TO PREVENT LOCAL GOVERNMENTS FROM EXERCISING SOME MONOPOLY POWER.

Abstract. Contrary to the conventional hypothesis, the structural elements on the supply side of free product markets are not stable. The variability in the structures of free markets is readily apparent in an appropriate analysis of the emergence, growth, and maturity of free product markets. In this analysis, supply‐side entrepreneurship plays a prominent role—one which is only imputed to entrepreneurship in the conventional specification of market conditions. In order to correct this deficiency in the conventional specification, an alternative specification is summarized in which are treated explicitly the effects of entrepreneurial activity with respect to the discovery and development of economically feasible new products and processes and the choice of and variations in the quality characteristics of the products of individual firms. This indicates that firms can and do influence the stage of development—and hence the related size—of a market and their relative shares of it by new product and process development and the quality of their output. In this way entrepreneurial activity affects particular product market structures.