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

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

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages63
Volume2018-040
Publication statusPublished - 2 Oct 2018

Publication series

NameCentER Discussion Paper
Volume2018-040

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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.