Econometrica Vol. 86 No. 2 2018

Very Simple Markov-Perfect Industry Dynamics: Theory

Jaap H. Abbring^1,2; Jeffrey R. Campbell^3,4; Jan Tilly⁵; Nan Yang⁶

¹ CentER; Department of Econometrics & OR; Tilburg University · ² CEPR , · ³ Economic Research; Federal Reserve Bank of Chicago · ⁴ CentER; Tilburg University · ⁵ Department of Economics, University of Pennsylvania · ⁶ Department of Strategy & Policy and Department of Marketing; National University of Singapore

Abstract

This paper develops a simple model of firm entry, competition, and exit in oligopolistic markets. It features toughness of competition, sunk entry costs, and market-level demand and cost shocks, but assumes that firms' expected payoffs are identical when entry and survival decisions are made. We prove that this model has an essentially unique symmetric Markov-perfect equilibrium, and we provide an algorithm for its computation. Because this algorithm only requires finding the fixed points of a finite sequence of contraction mappings, it is guaranteed to converge quickly.

DOI

10.3982/ecta14060

Volume

86

Issue

2

Pages

721-735

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓