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.
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 language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | CentER, Center for Economic Research |
| Number of pages | 63 |
| Volume | 2018-040 |
| Publication status | Published - 2 Oct 2018 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2018-040 |
Keywords
- demand uncertainty
- dynamic oligopoly
- firm entry and exit
- nested fixed point estimator
- sunk costs
- toughness of competition
- cunterfactual plicy analysis