IDEAS home Printed from https://ideas.repec.org/p/tiu/tiucen/742a0d4c-3766-45de-af30-4ea80793b976.html
   My bibliography  Save this paper

Very Simple Markov-Perfect Industry Dynamics : Theory

Author

Listed:
  • Abbring, Jaap

    (Tilburg University, Center For Economic Research)

  • Campbell, J.R.
  • Tilly, J.
  • Yang, N.

    (Tilburg University, Center For Economic Research)

Abstract

This paper develops a simple model of firm entry, competition, and exit in oligopolistic markets. It features toughness of competition, sunk entry costs, and market-level demand and cost shocks, but assumes that firms' expected payoffs are identical when entry and survival decisions are made. We prove that this model has an essentially unique symmetric Markov-perfect equilibrium, and we provide an algorithm for its computation. Because this algorithm only requires finding the fixed points of a finite sequence of contraction mappings, it is guaranteed to converge quickly.

Suggested Citation

  • Abbring, Jaap & Campbell, J.R. & Tilly, J. & Yang, N., 2017. "Very Simple Markov-Perfect Industry Dynamics : Theory," Discussion Paper 2017-020, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:742a0d4c-3766-45de-af30-4ea80793b976
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/portal/files/16003745/2017_020.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Fedor Iskhakov & John Rust & Bertel Schjerning, 2016. "Recursive Lexicographical Search: Finding All Markov Perfect Equilibria of Finite State Directional Dynamic Games," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 658-703.
    2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
    3. Preston R. Fee & Hugo M. Mialon & Michael A. Williams, 2004. "What Is a Barrier to Entry?," American Economic Review, American Economic Association, vol. 94(2), pages 461-465, May.
    4. Abbring, Jaap & Campbell, J.R. & Tilly, J. & Yang, N., 2017. "Very Simple Markov-Perfect Industry Dynamics : Empirics," Discussion Paper 2017-021, Tilburg University, Center for Economic Research.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    demand uncertainty; dynamic oligopoly; firm entry and exit; sunk costs; toughness of competition;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiucen:742a0d4c-3766-45de-af30-4ea80793b976. 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: (Richard Broekman). General contact details of provider: http://center.uvt.nl .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.