Very simple Markov‐Perfect industry dynamics: Theory
Abbring,Jaap Campbell,Jeffrey Tilly,J. Yang,N.
Abbring,Jaap
Campbell,Jeffrey
Tilly,J.
Yang,N.
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.
Description
Date
2018-03-31
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
demand uncertainty, dynamic oligopoly, firm entry and exit, sunk costs, thoughness of competition
Citation
Abbring, J, Campbell, J, Tilly, J & Yang, N 2018, 'Very simple Markov‐Perfect industry dynamics : Theory', Econometrica, vol. 86, no. 2, pp. 721-735. https://doi.org/10.3982/ECTA14060
License
info:eu-repo/semantics/closedAccess