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Entry, Exit, and Technological Progress in Markov-Perfect Duopoly

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  • Jaap H. Abbring
  • Jeffrey R. Campbell
  • Nan Yang

Abstract

This paper establishes the existence and essential uniqueness of an intuitively refined Markov-perfect equilibrium in a duopoly game with sunk costs, barriers to entry, firm-specific technological progress, and irreversible exit. We develop an algorithm that quickly computes the equilibrium by solving for fixed points of a finite sequence of auxiliary contraction mappings, which we label Fake Backward Induction. We illustrate the game's practical value with a quantitative analysis of competition policy in a stochastically growing market with firms idiosyncratically learning by aging. Computing one equilibrium of this example takes 10.2 seconds on one Apple M5 Pro core.

Suggested Citation

  • Jaap H. Abbring & Jeffrey R. Campbell & Nan Yang, 2026. "Entry, Exit, and Technological Progress in Markov-Perfect Duopoly," Papers 2610.28440, arXiv.org.
    • Handle: RePEc:arx:papers:2610.28440
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    File URL: https://arxiv.org/pdf/2610.28440
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