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Industry Dynamics and Entrepreneurship: An Equilibrium Model

Author

Listed:
  • Dennis Fok

    (Erasmus University Rotterdam)

  • Andre van Stel

    (University of Amsterdam)

  • Andrew Burke

    (Cranfield University, UK)

  • Roy Thurik

    (Erasmus University Rotterdam)

Abstract

This paper conducts the first general equilibrium analysis of the role of entry, exit and profits in industry dynamics. The benefit of our model is twofold. First, to discriminate between entrants’ role of performing the entrepreneurial function of creating disequilibrium and the conventional equilibrating role of moving the industry to a new equilibrium. Second, to discriminate between three aspects of industry dynamics: the effect of entry and exit on market equilibrium, duration of disequilibrium and patterns of adjustment. Using a rich data set of the retail industry, we construct a dynamic simultaneous equilibrium model of profits, entry and exit. We find that indeed entrants play an entrepreneurial function causing long periods of disequilibrium after which a new equilibrium is attained. Moreover, we find ample support for the statement that disequilibrium is the essence of economic progress.

Suggested Citation

  • Dennis Fok & Andre van Stel & Andrew Burke & Roy Thurik, 2010. "Industry Dynamics and Entrepreneurship: An Equilibrium Model," Tinbergen Institute Discussion Papers 10-012/3, Tinbergen Institute, revised 08 Oct 2010.
  • Handle: RePEc:tin:wpaper:20100012
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    File URL: http://papers.tinbergen.nl/10012.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    entry; exit; profits; equilibrium; industrial dynamics; retailing;

    JEL classification:

    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • L00 - Industrial Organization - - General - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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