Very Simple Markov-Perfect Industry Dynamics: Theory

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

Research output: Working paperDiscussion paperOther research output

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Abstract

This paper develops a simple model of firm entry, competition, and exit in oligopolistic markets. It features toughness of competition, sunk entry costs, and market-level demand and cost shocks, but assumes that firms' expected payoffs are identical when entry and survival decisions are made.
We prove that this model has an essentially unique symmetric Markov-perfect
equilibrium, and we provide an algorithm for its computation. Because this algorithm only requires finding the fixed points of a finite sequence of contraction mappings, it is guaranteed to converge quickly.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages21
Volume2017-020
Publication statusPublished - 31 Mar 2017

Publication series

NameCentER Discussion Paper
Volume2017-020

Fingerprint

Industry dynamics
Contraction mapping
Firm entry
Exit
Entry costs
Fixed point
Costs

Keywords

  • demand uncertainty
  • dynamic oligopoly
  • firm entry and exit
  • sunk costs
  • toughness of competition

Cite this

Abbring, J., Campbell, J. R., Tilly, J., & Yang, N. (2017). Very Simple Markov-Perfect Industry Dynamics: Theory. (CentER Discussion Paper; Vol. 2017-020). Tilburg: CentER, Center for Economic Research.
Abbring, Jaap ; Campbell, J.R. ; Tilly, J. ; Yang, N. / Very Simple Markov-Perfect Industry Dynamics : Theory. Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper).
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Abbring, J, Campbell, JR, Tilly, J & Yang, N 2017 'Very Simple Markov-Perfect Industry Dynamics: Theory' CentER Discussion Paper, vol. 2017-020, CentER, Center for Economic Research, Tilburg.

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

Tilburg : CentER, Center for Economic Research, 2017. (CentER Discussion Paper; Vol. 2017-020).

Research output: Working paperDiscussion paperOther research output

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Abbring J, Campbell JR, Tilly J, Yang N. Very Simple Markov-Perfect Industry Dynamics: Theory. Tilburg: CentER, Center for Economic Research. 2017 Mar 31. (CentER Discussion Paper).