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The Entrepreneurial Adjustment Process in Disequilibrium

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  • Andrew Burke

    ()
    (Cranfield University, UK)

  • Andr� van Stel

    ()
    (University of Amsterdam)

Abstract

The main contribution of entrepreneurship theory to economics is to provide an account of market performance in disequilibrium but little empirical research has examined firm entry and exit in this context. We redress this by modelling the interrelationship between firm entry and exit in disequilibrium. Introducing a new methodology we investigate whether this interrelationship differs between market ‘undershooting’ (the actual number of firms is below the equilibrium number) and ‘overshooting’ (vice versa). We find that equilibrium-restoring mechanisms are faster in over than in undershoots. The results imply that in undershoots a lack of competition between incumbent firms contributes to restoration of equilibrium (creating room for new-firm entry) while in overshoots competition induced by new firms (in particular strong displacement) helps restore equilibrium.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-005/3.

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Date of creation: 16 Jan 2009
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Handle: RePEc:dgr:uvatin:20090005

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Keywords: entry; exit; equilibrium; industrial organization; undershooting; overshooting;

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  15. Jim Jin & Juan Perote-Peña & Michael Troege, 2004. "Learning by doing, spillovers and shakeouts," Journal of Evolutionary Economics, Springer, Springer, vol. 14(1), pages 85-98, January.
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