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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.

Suggested Citation

  • Bertomeu, Jeremy, 2009. "Endogenous shakeouts," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 435-440, May.
    • Handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:435-440
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    References listed on IDEAS

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    Cited by:

    1. Ruiz-Aliseda, Francisco, 2012. "Innovation Beyond Patents: Technological Complexity as a Protection against Imitation," CEPR Discussion Papers 8870, C.E.P.R. Discussion Papers.
    2. Meagher, Kieron J. & Wong, Arlene & Zauner, Klaus G., 2020. "A competitive analysis of fail fast: Shakeout and uncertainty about consumer tastes," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 589-600.
    3. repec:hal:spmain:info:hdl:2441/dambferfb7dfprc9m0533i43h is not listed on IDEAS
    4. repec:hal:wpspec:info:hdl:2441/dambferfb7dfprc9m0533i43h is not listed on IDEAS

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