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Industry dynamics with stochastic demand

Author

Listed:
  • James Bergin
  • Dan Bernhardt

Abstract

We study the dynamics of an industry subject to aggregate demand shocks where the productivity of a firm's technology evolves stochastically over time. To characterize the intertemporal evolution of the distribution of firms, we discuss in particular how exit decisions, aggregate output, profits, and distributions of firm productivities vary (a) across different demand realization paths; (b) along a demand history path, detailing the effects of continued good or bad market conditions; and (c) for different anticipated future market conditions. We show how poor demand conditions can lead to increased exit of low-productivity firms at all future dates and states and raise welfare due to the impact on exit decisions. Copyright (c)2008, RAND.

Suggested Citation

  • James Bergin & Dan Bernhardt, 2008. "Industry dynamics with stochastic demand," RAND Journal of Economics, RAND Corporation, vol. 39(1), pages 41-68.
  • Handle: RePEc:bla:randje:v:39:y:2008:i:1:p:41-68
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    References listed on IDEAS

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    1. Bergin, James & Bernhardt, Dan, 1992. "Anonymous sequential games with aggregate uncertainty," Journal of Mathematical Economics, Elsevier, vol. 21(6), pages 543-562.
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    Citations

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    Cited by:

    1. John Duggan, 2011. "Noisy Stochastic Games," RCER Working Papers 562, University of Rochester - Center for Economic Research (RCER).
    2. John Duggan, 2012. "Noisy Stochastic Games," RCER Working Papers 570, University of Rochester - Center for Economic Research (RCER).
    3. Maria José Gil-Moltó & Dimitrios Varvarigos, 2012. "Industry Dynamics and Indeterminacy in an OLG Economy with Endogenous Occupational Choice," Discussion Papers in Economics 12/09, Department of Economics, University of Leicester, revised Sep 2012.
    4. Santanu Roy & Takashi Kamihigashi, 2004. "Investment, Externalities & Industry Dynamics," Econometric Society 2004 North American Summer Meetings 144, Econometric Society.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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