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“Winners take all competition”, creative destruction and stock market bubble

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  • Christophe Boucher

    (CEPN-University of Paris-North)

Abstract

From the model of Hobijn and Jovanovic (2001), we modelize a technological shock with uncertainty. We assume that this technological shock appears in the shape of new firms. Only a part of these firms will be productive. Uncertainty relates to the identification of the viable firms. This uncertainty decreases with the time and the diffusion of fundamentalist information that makes it possible to identify without error the viable firms. Without this fundamentalist information, the behavior of agents follows a rule of decision similar to that formulated by Heiner (1983). Uncertainty concerning the identification of viable firms which emerge of the technological shock, leads to a stock market bubble even though agents have a perfect knowledge of the impact of the shock and date on which it occurs. This type of uncertainty seems to characterize firms of the Information Communication Technology industries, which are confronted with a "winners take all" competition.

Suggested Citation

  • Christophe Boucher, 2003. "“Winners take all competition”, creative destruction and stock market bubble," Finance 0305010, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0305010
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    References listed on IDEAS

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    1. Greenwood, Jeremy & Yorukoglu, Mehmet, 1997. "1974," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 46(1), pages 49-95, June.
      • Greenwood, J. & Yorukoglu, M., 1996. "1974," RCER Working Papers 429, University of Rochester - Center for Economic Research (RCER).
    2. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-595, September.
    3. Rodolfo E. Manuelli, 2000. "Technological Change, the Labor Market and the Stock Market," NBER Working Papers 8022, National Bureau of Economic Research, Inc.
    4. Jeremy Greenwood & Boyan Jovanovic, 1999. "The IT Revolution and the Stock Market," NBER Working Papers 6931, National Bureau of Economic Research, Inc.
    5. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
    6. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    7. David S. Evans & Richard Schmalensee, 2002. "Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries," NBER Chapters,in: Innovation Policy and the Economy, Volume 2, pages 1-50 National Bureau of Economic Research, Inc.
    8. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Uncertainty; technological change; asset price bubble; winner takes all.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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