Very Simple Markov-Perfect Industry Dynamics
AbstractThis paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical application with ten years of County Business Patterns data from the Motion Picture Theaters industry in 573 Micropolitan Statistical Areas. The results are suggestive of fierce competition between theaters in the market for film exhibition rights.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2013-20.
Length: 57 pages
Date of creation: 30 Nov 2013
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Other versions of this item:
- Nan Yang & Jeffrey Campbell & Jan Tilly & Jaap Abbring, 2013. "Very Simple Markov-Perfect Industry Dynamics," 2013 Meeting Papers 673, Society for Economic Dynamics.
- Abbring, J.H. & Campbell, J.R. & Tilly, J. & Yang, N., 2014. "Very Simple Markov-Perfect Industry Dynamics," Discussion Paper 2014-008, Tilburg University, Center for Economic Research.
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- 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-2014-02-08 (All new papers)
- NEP-COM-2014-02-08 (Industrial Competition)
- NEP-ORE-2014-02-08 (Operations Research)
- NEP-SEA-2014-02-08 (South East Asia)
- NEP-TID-2014-02-08 (Technology & Industrial Dynamics)
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