The Entrepreneurial Adjustment Process in Disequilibrium: Entry and Exit when Markets Under and Over Shoot
AbstractThe 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 InfoPaper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2008-21.
Length: 33 p.
Date of creation: Mar 2009
Date of revision:
Note: Version: January 2009
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More information through EDIRC
entry; exit; equilibrium; industrial organization; undershooting; overshooting;
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-2009-03-22 (All new papers)
- NEP-BEC-2009-03-22 (Business Economics)
- NEP-COM-2009-03-22 (Industrial Competition)
- NEP-ENT-2009-03-22 (Entrepreneurship)
- NEP-MIC-2009-03-22 (Microeconomics)
- NEP-TID-2009-03-22 (Technology & Industrial Dynamics)
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.:
- De Meza, D. & Southey, C., 1995.
"The Borrower's Curse: Optimism, Finance and Enterpreneurship,"
9502, Exeter University, Department of Economics.
- de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-86, March.
- de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
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