Abstract
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 language | English |
|---|---|
| Place of Publication | Tilburg |
| Publisher | CentER, Center for Economic Research |
| Number of pages | 21 |
| Volume | 2017-020 |
| Publication status | Published - 31 Mar 2017 |
Publication series
| Name | CentER Discussion Paper |
|---|---|
| Volume | 2017-020 |
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Keywords
- demand uncertainty
- dynamic oligopoly
- firm entry and exit
- sunk costs
- toughness of competition
Cite this
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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 paper › Discussion paper › Other research output
TY - UNPB
T1 - Very Simple Markov-Perfect Industry Dynamics
T2 - Theory
AU - Abbring, Jaap
AU - Campbell, J.R.
AU - Tilly, J.
AU - Yang, N.
PY - 2017/3/31
Y1 - 2017/3/31
N2 - 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-perfectequilibrium, 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.
AB - 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-perfectequilibrium, 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.
KW - demand uncertainty
KW - dynamic oligopoly
KW - firm entry and exit
KW - sunk costs
KW - toughness of competition
M3 - Discussion paper
VL - 2017-020
T3 - CentER Discussion Paper
BT - Very Simple Markov-Perfect Industry Dynamics
PB - CentER, Center for Economic Research
CY - Tilburg
ER -