Industry Dynamics and Entrepreneurship: An Equilibrium Model
AbstractThis paper conducts the first general equilibrium analysis of the role of entry, exit and profits in industry dynamics. The benefit of our model is twofold. First, to discriminate between entrants’ role of performing the entrepreneurial function of creating disequilibrium and the conventional equilibrating role of moving the industry to a new equilibrium. Second, to discriminate between three aspects of industry dynamics: the effect of entry and exit on market equilibrium, duration of disequilibrium and patterns of adjustment. Using a rich data set of the retail industry, we construct a dynamic simultaneous equilibrium model of profits, entry and exit. We find that indeed entrants play an entrepreneurial function causing long periods of disequilibrium after which a new equilibrium is attained. Moreover, we find ample support for the statement that disequilibrium is the essence of economic progress.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 10-012/3.
Date of creation: 13 Jan 2010
Date of revision: 08 Oct 2010
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Web page: http://www.tinbergen.nl
entry; exit; profits; equilibrium; industrial dynamics; retailing;
Find related papers by JEL classification:
- B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
- J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
- L00 - Industrial Organization - - General - - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-BEC-2010-05-15 (Business Economics)
- NEP-COM-2010-05-15 (Industrial Competition)
- NEP-ENT-2010-05-15 (Entrepreneurship)
- NEP-SBM-2010-05-15 (Small Business Management)
- NEP-TID-2010-05-15 (Technology & Industrial Dynamics)
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