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Endogenous shakeouts

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  • Bertomeu, Jeremy

Abstract

Most new industries feature a shakeout, i.e. a short burst of entry soon followed by rapid exit of most early entrants. Yet, the speed, magnitude and timing of shakeouts are somewhat puzzling from the perspective of conventional entry models. In this paper, we argue that shakeouts are likely to occur as a result of the stochastic dynamics of the entry process, when firms are uncertain about their competitors' decision to enter. We show that the magnitude of such "endogenous" shakeouts can be quite large and sudden, in particular in highly competitive industries or markets with low-investment cost, low impatience and high liquidation values.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 3 (May)
Pages: 435-440

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Handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:435-440

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Shake-out Sunk cost Strategic uncertainty Coordination;

References

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  8. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-24, July.
  9. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  10. Sharkey, William W. & Sibley, David S., 1993. "A Bertrand model of pricing and entry," Economics Letters, Elsevier, vol. 41(2), pages 199-206.
  11. Cabral, Luis M. B., 2004. "Simultaneous entry and welfare," European Economic Review, Elsevier, vol. 48(5), pages 943-957, October.
  12. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  13. Klepper, Steven & Miller, John H., 1995. "Entry, exit, and shakeouts in the United States in new manufactured products," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 567-591, December.
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Cited by:
  1. Francisco Ruiz Aliseda & Emeric Henry, 2013. "Innovation beyond Patents: Technological Complexity as a Protection against Imitation," Sciences Po publications 2013-06, Sciences Po.

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