Very simple Markov‐Perfect industry dynamics: Theory

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

Research output: Contribution to journalArticleScientificpeer-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 languageEnglish
Pages (from-to)721-735
JournalEconometrica
Volume86
Issue number2
DOIs
Publication statusPublished - 31 Mar 2018

Keywords

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

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