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Entry Patterns Over The Product Life Cycle

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Author Info
ÓSCAR GUTIÉRREZ
FRANCISCO RUIZ-ALISEDA

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Abstract

We study a game-theoretic real options model of new market entry based on empirical evidence of demand for a new product growing over time and eventually falling. Yet, firms do not know ex ante when this will occur, which creates incentives to update information by delaying irreversible entry. By assuming that the construction of a new productive plant takes some time and is unobservable in the meantime, while operation in the market is not, we show that entry rates increase or decrease under certain conditions related to the rate at which flow profits decrease as more firms enter the industry. Copyright © 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd and The University of Manchester.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2009.02113.x
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Publisher Info
Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 77 (2009)
Issue (Month): 5 (09)
Pages: 594-610
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Handle: RePEc:bla:manchs:v:77:y:2009:i:5:p:594-610

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  1. Polli, Rolando & Cook, Victor, 1969. "Validity of the Product Life Cycle," Journal of Business, University of Chicago Press, vol. 42(4), pages 385-400, October. [Downloadable!] (restricted)
  2. Jennifer F. Reinganum, 1981. "Market Structure and the Diffusion of New Technology," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 618-624, Autumn. [Downloadable!] (restricted)
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  3. Bass, Frank M, 1980. "The Relationship between Diffusion Rates, Experience Curves, and Demand Elasticities for Consumer Durable Technological Innovations," Journal of Business, University of Chicago Press, vol. 53(3), pages S51-67, July. [Downloadable!] (restricted)
  4. Oscar Gutierrez Arnaiz & Francisco Ruiz-Aliseda, 2003. "Real Options with Unknown-Date Events," Discussion Papers 1378, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  5. Alessandro Barbarino & Boyan Jovanovic, 2004. "Shakeouts and Market Crashes," NBER Working Papers 10556, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Alessandro Barbarino & Boyan Jovanovic, 2007. "Shakeouts And Market Crashes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 385-420, 05. [Downloadable!] (restricted)
  6. John Londregan, 1990. "Entry and Exit over the Industry Life Cycle," RAND Journal of Economics, The RAND Corporation, vol. 21(3), pages 446-458, Autumn. [Downloadable!] (restricted)
  7. Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-53, September. [Downloadable!] (restricted)
  8. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  9. Steven Klepper & Elizabeth Graddy, 1990. "The Evolution of New Industries and the Determinants of Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 27-44, Spring. [Downloadable!] (restricted)
  10. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September. [Downloadable!] (restricted)
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This page was last updated on 2009-11-22.

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