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“Winners take all competition”, creative destruction and stock market bubble

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Christophe Boucher (CEPN-University of Paris-North)

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Abstract

From the model of Hobijn and Jovanovic (2001), we modelize a technological shock with uncertainty. We assume that this technological shock appears in the shape of new firms. Only a part of these firms will be productive. Uncertainty relates to the identification of the viable firms. This uncertainty decreases with the time and the diffusion of fundamentalist information that makes it possible to identify without error the viable firms. Without this fundamentalist information, the behavior of agents follows a rule of decision similar to that formulated by Heiner (1983). Uncertainty concerning the identification of viable firms which emerge of the technological shock, leads to a stock market bubble even though agents have a perfect knowledge of the impact of the shock and date on which it occurs. This type of uncertainty seems to characterize firms of the Information Communication Technology industries, which are confronted with a "winners take all" competition.

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Paper provided by EconWPA in its series Finance with number 0305010.

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Date of creation: 31 May 2003
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Handle: RePEc:wpa:wuwpfi:0305010

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Web page: http://129.3.20.41

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Related research
Keywords: Uncertainty; technological change; asset price bubble; winner takes all.;

Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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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.:
  1. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March. [Downloadable!] (restricted)
  3. Greenwood, J. & Jovanovic, B., 1999. "The IT Revolution and the Stock Market," RCER Working Papers 460, University of Rochester - Center for Economic Research (RCER). [Downloadable!]
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  4. David S. Evans & Richard Schmalensee, 2001. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Working Papers 8268, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November. [Downloadable!] (restricted)
  6. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September. [Downloadable!] (restricted)
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