Last-In First-Out Oligopoly Dynamics
AbstractThis paper extends the static analysis of oligopoly structure into an infinite-horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first-out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, a sequence of thresholds describes firms' equilibrium entry and survival decisions. Bresnahan and Reiss's (1993) empirical analysis of oligopolists' entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game-theoretic foundation for that structure.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-110/3.
Date of creation: 19 Dec 2006
Date of revision: 22 Jan 2009
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Web page: http://www.tinbergen.nl
Sunk costs; Demand uncertainty; Markov-Perfect equilibrium; LIFO;
Other versions of this item:
- Jaap H. Abbring & Jeffrey R. Campbell, 2006. "Last-in first-out oligopoly dynamics," Working Paper Series WP-06-28, Federal Reserve Bank of Chicago.
- Jaap H. Abbring & Jeffrey R. Campbell, 2009. "Last-In First-Out Oligopoly Dynamics," NBER Working Papers 14674, National Bureau of Economic Research, Inc.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-28 (All new papers)
- NEP-BEC-2007-01-28 (Business Economics)
- NEP-COM-2007-01-28 (Industrial Competition)
- NEP-ENT-2007-01-28 (Entrepreneurship)
- NEP-IND-2007-01-28 (Industrial Organization)
- NEP-MIC-2007-01-28 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jaap H. Abbring & Jeffrey R. Campbell, 2005. "A Firm's First Year," Tinbergen Institute Discussion Papers 05-046/3, Tinbergen Institute.
- Jaap H. Abbring & Jeffrey R. Campbell, 2006. "Oligopoly dynamics with barriers to entry," Working Paper Series WP-06-29, Federal Reserve Bank of Chicago.
- Hanazono, Makoto & Yang, Huanxing, 2009. "Dynamic entry and exit with uncertain cost positions," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 474-487, May.
- Wilson, Nathan E., 2012. "Uncertain regulatory timing and market dynamics," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 102-115.
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