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Explaining The Shakeout Process: A 'Successive Submarkets' Model

Listed author(s):
  • Jian Tong

This article explains contemporaneous exit and entry in a new industry with a diffusion process across submarkets. It allows a re-interpretation of the shakeout process in some industries in a novel way. The industry is a collection of initially inactive independent submarkets; the timing of their activation is determined by an exogenous aggregate diffusion process. New submarket opening attracts new entry. However, the post-entry endogenous sunk investment requirement induced by innovations also forces much exit to follow entry. The aggregate market thus has overlapping exit and entry; and has a shakeout if the aggregate diffusion process follows a typical S-shape. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0297.2009.02252.x
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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 119 (2009)
Issue (Month): 537 (April)
Pages: 950-975

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Handle: RePEc:ecj:econjl:v:119:y:2009:i:537:p:950-975
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