“Winners take all competition”, creative destruction and stock market bubble
AbstractFrom 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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Date of creation: 31 May 2003
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Uncertainty; technological change; asset price bubble; winner takes all.;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-06-04 (All new papers)
- NEP-CFN-2003-06-04 (Corporate Finance)
- NEP-ENT-2003-06-04 (Entrepreneurship)
- NEP-INO-2003-06-04 (Innovation)
- NEP-RMG-2003-06-04 (Risk Management)
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