Dynamic entry and exit with uncertain cost positions
We study the dynamics of entry and exit based on firms' learning about their relative cost positions. Each firm's marginal cost of production is its own private information, thereby facing ex ante uncertainty about its cost position. The (inelastic) market demand can accommodate only a fraction of firms to operate, and thus only firms with relatively lower costs are viable in the long run. Some firms in the market will exit if excessive entry (or overshooting) occurs. We derive the unique symmetric sequential equilibrium. The equilibrium properties are consistent with empirical observations: (i) entry occurs gradually over time with lower cost firms entering earlier than higher cost firms, (ii) exiting firms are among the ones that entered later (indeed in the last period). Moreover, equilibrium overshooting probability is shown to always be positive and decreasing over time.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Paul Klemperer & Jeremy Bulow, 1999.
"The Generalized War of Attrition,"
Game Theory and Information
- Bulow, Jeremy I. & Klemperer, Paul, 1997. "The Generalized War of Attrition," CEPR Discussion Papers 1564, C.E.P.R. Discussion Papers.
- Jeremy Bulow & Paul Klemperer, 1997. "The Generalized War of Attrition," NBER Working Papers 5872, National Bureau of Economic Research, Inc.
- Jeremy I. Bulow & Paul Klemperer, 1996. "The Generalized War of Attrition," Cowles Foundation Discussion Papers 1142, Cowles Foundation for Research in Economics, Yale University.
- Vettas, Nikolaos, 2000.
"Investment Dynamics in Markets with Endogenous Demand,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 48(2), pages 189-203, June.
- Vettas, N., 1996. "Investment Dynamics in Markets with Endogenous Demand," UFAE and IAE Working Papers 344.96, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Vettas, Nikolaos, 1999. "Investment Dynamics in Markets with Endogenous Demand," Working Papers 99-05, Duke University, Department of Economics.
- Vettas, Nikolaos, 1998. "Investment Dynamics in Markets with Endogenous Demand," CEPR Discussion Papers 1994, C.E.P.R. Discussion Papers.
- Jovanovic, Boyan & MacDonald, Glenn M, 1994.
"The Life Cycle of a Competitive Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 102(2), pages 322-347, April.
- Jovanovic, B. & MacDonald, G.M., 1992. "The Life-Cycle of Competitive Industry," Papers 92-09, Rochester, Business - Financial Research and Policy Studies.
- Jovanovic, B. & MacDonald, G., 1993. "The Life Cycle of a Competitive Industry," Working Papers 93-34, C.V. Starr Center for Applied Economics, New York University.
- Boyan Jovanovic & Glenn MacDonald, 1993. "The Life-Cycle of a Competitive Industry," NBER Working Papers 4441, National Bureau of Economic Research, Inc.
- Jaap H. Abbring & Jeffrey R. Campbell, 2006.
"Last-In First-Out Oligopoly Dynamics,"
Tinbergen Institute Discussion Papers
06-110/3, Tinbergen Institute, revised 22 Jan 2009.
- Jaap H. Abbring & Jeffrey R. Campbell, 2009. "Last-In First-Out Oligopoly Dynamics," NBER Working Papers 14674, National Bureau of Economic Research, Inc.
- Jaap H. Abbring & Jeffrey R. Campbell, 2006. "Last-in first-out oligopoly dynamics," Working Paper Series WP-06-28, Federal Reserve Bank of Chicago.
- Jovanovic, Boyan & Lach, Saul, 1989.
"Entry, Exit, and Diffusion with Learning by Doing,"
American Economic Review,
American Economic Association, vol. 79(4), pages 690-699, September.
- Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-670, May.
- Chamley, Christophe & Gale, Douglas, 1994.
"Information Revelation and Strategic Delay in a Model of Investment,"
Econometric Society, vol. 62(5), pages 1065-1085, September.
- Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
- Cabral Luis M. B., 1993. "Experience Advantages and Entry Dynamics," Journal of Economic Theory, Elsevier, vol. 59(2), pages 403-416, April.
- Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
- Gort, Michael & Klepper, Steven, 1982. "Time Paths in the Diffusion of Product Innovations," Economic Journal, Royal Economic Society, vol. 92(367), pages 630-653, September.
- Vettas, Nikolaos, 1997.
"Entry and exit under demand uncertainty,"
Elsevier, vol. 57(2), pages 227-234, December.
- Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
- Bolton, Patrick & Farrell, Joseph, 1990. "Decentralization, Duplication, and Delay," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 803-826, August.
- Klepper, Steven & Miller, John H., 1995. "Entry, exit, and shakeouts in the United States in new manufactured products," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 567-591, December.
- Levin, Dan & Peck, James, 2003. " To Grab for the Market or to Bide One's Time: A Dynamic Model of Entry," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 536-556, Autumn.
- Rafael Rob, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Oxford University Press, vol. 58(4), pages 655-675.
- Vettas, Nikolaos, 2000. "On entry, exit, and coordination with mixed strategies," European Economic Review, Elsevier, vol. 44(8), pages 1557-1576, August.
- Bulow, Jeremy I. & Klemperer, Paul, 1991.
"Rational Frenzies and Crashes,"
CEPR Discussion Papers
593, C.E.P.R. Discussion Papers.
- Klepper, Steven & Simons, Kenneth L, 1997. "Technological Extinctions of Industrial Firms: An Inquiry into Their Nature and Causes," Industrial and Corporate Change, Oxford University Press, vol. 6(2), pages 379-460, March.
When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:474-487. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.