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

Author

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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, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0305010
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    References listed on IDEAS

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    Keywords

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    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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