Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021): Empirics

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

Research output: Working paperDiscussion paperOther research output

Abstract

This paper develops an econometric model of firm entry, competition, and
exit in oligopolistic markets. The model has an essentially unique symmetric
Markov-perfect equilibrium, which can be computed very quickly. We show
that its primitives are identified from market-level data on the number of
active firms and demand shifters, and we implement a nested fixed point
procedure for its estimation. Estimates from County Business Patterns data
on U.S. local cinema markets point to tough local competition. Sunk costs
make the industry's transition following a permanent demand shock last 10
to 15 years.
LanguageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages63
Volume2018-040
StatePublished - 2 Oct 2018

Publication series

NameCentER Discussion Paper
Volume2018-040

Fingerprint

Empirics
Industry dynamics
Industry
Demand shocks
Econometric models
Firm entry
Sunk costs
Exit
Markov perfect equilibrium
Fixed point
Cinema

Keywords

  • demand uncertainty
  • dynamic oligopoly
  • firm entry and exit
  • nested fixed point estimator
  • sunk costs
  • toughness of competition
  • cunterfactual plicy analysis

Cite this

Abbring, J., Campbell, J. R., Tilly, J., & Yang, N. (2018). Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021): Empirics. (CentER Discussion Paper; Vol. 2018-040). Tilburg: CentER, Center for Economic Research.
Abbring, Jaap ; Campbell, J.R. ; Tilly, J. ; Yang, N./ Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021) : Empirics. Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper).
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Abbring, J, Campbell, JR, Tilly, J & Yang, N 2018 'Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021): Empirics' CentER Discussion Paper, vol. 2018-040, CentER, Center for Economic Research, Tilburg.

Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021) : Empirics. / Abbring, Jaap; Campbell, J.R.; Tilly, J.; Yang, N.

Tilburg : CentER, Center for Economic Research, 2018. (CentER Discussion Paper; Vol. 2018-040).

Research output: Working paperDiscussion paperOther research output

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T1 - Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021)

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AU - Abbring,Jaap

AU - Campbell,J.R.

AU - Tilly,J.

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N2 - This paper develops an econometric model of firm entry, competition, andexit in oligopolistic markets. The model has an essentially unique symmetricMarkov-perfect equilibrium, which can be computed very quickly. We showthat its primitives are identified from market-level data on the number ofactive firms and demand shifters, and we implement a nested fixed pointprocedure for its estimation. Estimates from County Business Patterns dataon U.S. local cinema markets point to tough local competition. Sunk costsmake the industry's transition following a permanent demand shock last 10to 15 years.

AB - This paper develops an econometric model of firm entry, competition, andexit in oligopolistic markets. The model has an essentially unique symmetricMarkov-perfect equilibrium, which can be computed very quickly. We showthat its primitives are identified from market-level data on the number ofactive firms and demand shifters, and we implement a nested fixed pointprocedure for its estimation. Estimates from County Business Patterns dataon U.S. local cinema markets point to tough local competition. Sunk costsmake the industry's transition following a permanent demand shock last 10to 15 years.

KW - demand uncertainty

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KW - firm entry and exit

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KW - sunk costs

KW - toughness of competition

KW - cunterfactual plicy analysis

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Abbring J, Campbell JR, Tilly J, Yang N. Very Simple Markov-Perfect Industry Dynamics (revision of 2017-021): Empirics. Tilburg: CentER, Center for Economic Research. 2018 Oct 2, (CentER Discussion Paper).