Very Simple Markov-Perfect Industry Dynamics

J.H. Abbring, J.R. Campbell, J. Tilly, N. Yang

Research output: Working paperDiscussion paperOther research output

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Abstract

Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level data on demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the xed points of low-dimensional contraction mappings. We characterize the model's identi cation and extend Rust's (1987) nested xed point estimator to account for the observable implications of mixed strategies on survival. We illustrate the model's application with ten years of County Business Patterns data from Motion Picture Theaters in 573 Micropolitan Statistical Areas.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages54
Volume2014-008
Publication statusPublished - 2014

Publication series

NameCentER Discussion Paper
Volume2014-008

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Industry dynamics
Econometric models
Contraction mapping
Motion pictures
Estimator
Markov perfect equilibrium
Mixed strategy

Keywords

  • demand uncertainty
  • dynamic oligopoly
  • rm entry and exit
  • Markov-perfect equilibrium
  • nested xed point estimator
  • sunk costs
  • toughness of competition

Cite this

Abbring, J. H., Campbell, J. R., Tilly, J., & Yang, N. (2014). Very Simple Markov-Perfect Industry Dynamics. (CentER Discussion Paper; Vol. 2014-008). Tilburg: Econometrics.
Abbring, J.H. ; Campbell, J.R. ; Tilly, J. ; Yang, N. / Very Simple Markov-Perfect Industry Dynamics. Tilburg : Econometrics, 2014. (CentER Discussion Paper).
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Abbring, JH, Campbell, JR, Tilly, J & Yang, N 2014 'Very Simple Markov-Perfect Industry Dynamics' CentER Discussion Paper, vol. 2014-008, Econometrics, Tilburg.

Very Simple Markov-Perfect Industry Dynamics. / Abbring, J.H.; Campbell, J.R.; Tilly, J.; Yang, N.

Tilburg : Econometrics, 2014. (CentER Discussion Paper; Vol. 2014-008).

Research output: Working paperDiscussion paperOther research output

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AU - Abbring, J.H.

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AU - Yang, N.

N1 - Pagination: 54

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N2 - Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level data on demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the xed points of low-dimensional contraction mappings. We characterize the model's identi cation and extend Rust's (1987) nested xed point estimator to account for the observable implications of mixed strategies on survival. We illustrate the model's application with ten years of County Business Patterns data from Motion Picture Theaters in 573 Micropolitan Statistical Areas.

AB - Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level data on demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the xed points of low-dimensional contraction mappings. We characterize the model's identi cation and extend Rust's (1987) nested xed point estimator to account for the observable implications of mixed strategies on survival. We illustrate the model's application with ten years of County Business Patterns data from Motion Picture Theaters in 573 Micropolitan Statistical Areas.

KW - demand uncertainty

KW - dynamic oligopoly

KW - rm entry and exit

KW - Markov-perfect equilibrium

KW - nested xed point estimator

KW - sunk costs

KW - toughness of competition

M3 - Discussion paper

VL - 2014-008

T3 - CentER Discussion Paper

BT - Very Simple Markov-Perfect Industry Dynamics

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Abbring JH, Campbell JR, Tilly J, Yang N. Very Simple Markov-Perfect Industry Dynamics. Tilburg: Econometrics. 2014. (CentER Discussion Paper).