Very simple Markov‐Perfect industry dynamics: Theory

Jaap Abbring; Jeffrey Campbell; J. Tilly; N. Yang

doi:10.3982/ECTA14060

Very simple Markov‐Perfect industry dynamics: Theory

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

Research output: Contribution to journal › Article › Scientific › peer-review

2 Citations (Scopus)

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 language	English
Pages (from-to)	721-735
Journal	Econometrica
Volume	86
Issue number	2
DOIs	https://doi.org/10.3982/ECTA14060
Publication status	Published - 31 Mar 2018

Keywords

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

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Abbring, J., Campbell, J., Tilly, J., & Yang, N. (2018). Very simple Markov‐Perfect industry dynamics: Theory. Econometrica, 86(2), 721-735. https://doi.org/10.3982/ECTA14060

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