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

  • Christophe Boucher

    (CEPN-University of Paris-North)

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.

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Paper provided by EconWPA in its series Finance with number 0305010.

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Date of creation: 31 May 2003
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Handle: RePEc:wpa:wuwpfi:0305010
Note: Type of Document - Pdf
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  1. 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.
  2. Francesco Caselli, 1999. "Technological Revolutions," American Economic Review, American Economic Association, vol. 89(1), pages 78-102, March.
  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. 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.
  5. 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).
  6. Jeremy Greenwood & Boyan Jovanovic, 1999. "The IT Revolution and the Stock Market," NBER Working Papers 6931, National Bureau of Economic Research, Inc.
  7. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
  8. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-45, November.
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