Very Simple Markov-Perfect Industry Dynamics

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

Very Simple Markov-Perfect Industry Dynamics

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

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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 language	English
Place of Publication	Tilburg
Publisher	Econometrics
Number of pages	54
Volume	2014-008
Publication status	Published - 2014

Publication series

Name	CentER Discussion Paper
Volume	2014-008

Keywords

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

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2014-008

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title = "Very Simple Markov-Perfect Industry Dynamics",

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.",

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

author = "J.H. Abbring and J.R. Campbell and J. Tilly and N. Yang",

note = "Pagination: 54",

year = "2014",

language = "English",

volume = "2014-008",

series = "CentER Discussion Paper",

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TY - UNPB

T1 - Very Simple Markov-Perfect Industry Dynamics

AU - Abbring, J.H.

AU - Campbell, J.R.

AU - Tilly, J.

AU - Yang, N.

N1 - Pagination: 54

PY - 2014

Y1 - 2014

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

PB - Econometrics

CY - Tilburg

ER -

Very Simple Markov-Perfect Industry Dynamics

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Keywords

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