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Estimation of an Entry Model with Discrete Product Differentiation and Multiple Equilibria: An Empirical Analysis of Competition Between Banks and Thrifts

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  • Andrew Cohen
  • Mark D. Manuszak

Abstract

We consider a simple model of market structure determination with discrete product differentiation and strategic interaction between firms. Our equilibrium concept is based on a set of relatively weak conditions that describe the profits of active and potential firms in a market. In our model, an observed market structure is an equilibrium if all firms in the market are profitable and no other firms could profitably enter. Given the weak nature of our equilibrium concept, our model admits multiple equilibria. Rather than imposing additional restrictions on the nature of the entry process or the profit functions of firms to circumvent the multiplicity problems, we employ an estimation approach that explictly incorporates the multiple equilibria. We implement this approach to study the determinants of market structure patterns for banks and thrifts in localized banking markets

Suggested Citation

  • Andrew Cohen & Mark D. Manuszak, 2004. "Estimation of an Entry Model with Discrete Product Differentiation and Multiple Equilibria: An Empirical Analysis of Competition Between Banks and Thrifts," 2004 Meeting Papers 740, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:740
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    More about this item

    Keywords

    Structual IO models; empirical entry models; multiple equilibria;

    JEL classification:

    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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