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An Estimate Dynamic Model of Entry, Exit, and Growth in Oligopoly Retail Markets

  • Victor Aguirregabiria
  • Pedro Mira
  • Hernan Roman

This paper presents an estimable dynamic structural model of an oligopoly retail industry. The model can be estimated using panel data of local retail markets with information on new entries, exits and the size and growth of incumbent firms. In our model, retail firms are vertically and horizontally differentiated, compete in prices, make investments to improve the quality of their businesses, and decide to exit or to continue in the market. The model extends in two important ways the entry-exit model estimated in Aguirregabiria and Mira (2007). First, it includes firm size and growth as endogenous variables. And second, the empirical model has two sources of permanent unobserved heterogeneity: local-market heterogeneity and firm heterogeneity. This allows the researcher to control for potentially important sources of bias when using firm panel data with many local markets and several time periods.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 97 (2007)
Issue (Month): 2 (May)
Pages: 449-454

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Handle: RePEc:aea:aecrev:v:97:y:2007:i:2:p:449-454
Note: DOI: 10.1257/aer.97.2.449
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  1. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA.
  2. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business.
  3. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples)," NBER Working Papers 10506, National Bureau of Economic Research, Inc.
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