IDEAS home Printed from https://ideas.repec.org/p/zbw/bamber/145.html
   My bibliography  Save this paper

Asymmetric competition, risk, and return distribution

Author

Listed:
  • Mundt, Philipp
  • Oh, Ilfan

Abstract

We propose a parsimonious statistical model of firm competition where structural differences in the strength of competitive pressure and the magnitude of return fluctuations above and below the system-wide benchmark translate into a skewed Subbotin or asymmetric exponential power (AEP) distribution of returns to capital. Empirical evidence from US data illustrates that the AEP distribution compares favorably to popular alternative models such as the symmetric or asymmetric Laplace density in terms of goodness of fit when entry and exit dynamics of markets are taken into account.

Suggested Citation

  • Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," BERG Working Paper Series 145, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:145
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/193908/1/1067747281.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hommes, Cars & Lustenhouwer, Joep, 2019. "Managing unanchored, heterogeneous expectations and liquidity traps," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 1-16.
    2. Noemi Schmitt & Frank Westerhoff, 2017. "Heterogeneity, spontaneous coordination and extreme events within large-scale and small-scale agent-based financial market models," Journal of Evolutionary Economics, Springer, vol. 27(5), pages 1041-1070, November.
    3. Quis, Johanna Sophie & Reif, Simon, 2017. "Health effects of instruction intensity: Evidence from a natural experiment in German high-schools," BERG Working Paper Series 123, Bamberg University, Bamberg Economic Research Group.
    4. Quis, Johanna Sophie & Bela, Anika & Heineck, Guido, 2018. "Preschoolers' self-regulation, skill differentials, and early educational outcomes," BERG Working Paper Series 140, Bamberg University, Bamberg Economic Research Group.
    5. González-Díaz, Julio & Herold, Florian & Domínguez, Diego, 2016. "Strategic sequential voting," BERG Working Paper Series 113, Bamberg University, Bamberg Economic Research Group.
    6. Schlatterer, Markus & Saur, Marc & Schmitt, Stefanie, 2019. "Horizontal product differentiation with limited attentive consumers," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203571, Verein für Socialpolitik / German Economic Association.
    7. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    8. Ahrens, Steffen & Lustenhouwer, Joep & Tettamanzi, Michele, 2017. "The Stabilizing Role of Forward Guidance: A Macro Experiment," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168063, Verein für Socialpolitik / German Economic Association.
    9. Hommes, Cars & Lustenhouwer, Joep & Mavromatis, Kostas, 2018. "Fiscal consolidations and heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 173-205.
    10. Noemi Schmitt & Jan Tuinstra & Frank Westerhoff, 2018. "Stability and welfare effects of profit taxes within an evolutionary market interaction model," Review of International Economics, Wiley Blackwell, vol. 26(3), pages 691-708, August.
    11. Laica, Christoph & Lauber, Arne & Sahm, Marco, 2017. "Sequential round-robin tournaments with multiple prizes," BERG Working Paper Series 129, Bamberg University, Bamberg Economic Research Group.
    12. Alfarano, Simone & Milakovic, Mishael, 2008. "Does classical competition explain the statistical features of firm growth?," Economics Letters, Elsevier, vol. 101(3), pages 272-274, December.
    13. Sahm, Marco, 2017. "Are sequential round-robin tournaments discriminatory?," BERG Working Paper Series 121, Bamberg University, Bamberg Economic Research Group.
    14. Blaurock, Ivonne & Schmitt, Noemi & Westerhoff, Frank, 2018. "Market entry waves and volatility outbursts in stock markets," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 19-37.
    15. March, Christoph & Sahm, Marco, 2017. "Asymmetric discouragement in asymmetric contests," Economics Letters, Elsevier, vol. 151(C), pages 23-27.
    16. Christian Menden & Christian R. Proaño, 2017. "Dissecting the financial cycle with dynamic factor models," Quantitative Finance, Taylor & Francis Journals, vol. 17(12), pages 1965-1994, December.
    17. Kose John & Lubomir Litov & Bernard Yeung, 2008. "Corporate Governance and Risk‐Taking," Journal of Finance, American Finance Association, vol. 63(4), pages 1679-1728, August.
    18. Toke Reichstein & Morten Berg Jensen, 2005. "Firm size and firm growth rate distributions--The case of Denmark," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 14(6), pages 1145-1166, December.
    19. Schmitt, Noemi, 2018. "Heterogeneous expectations and asset price dynamics," BERG Working Paper Series 134, Bamberg University, Bamberg Economic Research Group.
    20. Flaschel, Peter & Charpe, Matthieu & Galanis, Giorgos & Proaño, Christian R. & Veneziani, Roberto, 2018. "Macroeconomic and stock market interactions with endogenous aggregate sentiment dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 237-256.
    21. Herold, Florian & Kuzmics, Christoph, 2020. "The evolution of taking roles," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 38-63.
    22. Marco Sahm, 2017. "Risk aversion and prudence in contests," Economics Bulletin, AccessEcon, vol. 37(2), pages 1122-1132.
    23. Lisa Planer-Friedrich & Marco Sahm, 2017. "Strategic Corporate Social Responsibility," CESifo Working Paper Series 6506, CESifo.
    24. Martin, Carolin & Schmitt, Noemi & Westerhoff, Frank, 2022. "Housing Markets, Expectation Formation And Interest Rates," Macroeconomic Dynamics, Cambridge University Press, vol. 26(2), pages 491-532, March.
    25. Planer-Friedrich, Lisa & Sahm, Marco, 2016. "Why firms should care for all consumers," BERG Working Paper Series 116, Bamberg University, Bamberg Economic Research Group.
    26. Marco Sahm, 2017. "Risk Aversion and Prudence in Contests," CESifo Working Paper Series 6417, CESifo.
    27. Roberto Dieci & Noemi Schmitt & Frank Westerhoff, 2018. "Steady states, stability and bifurcations in multi-asset market models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 357-378, November.
    28. Makarewicz, Tomasz, 2019. "Traders, forecasters and financial instability: A model of individual learning of anchor-and-adjustment heuristics," BERG Working Paper Series 141, Bamberg University, Bamberg Economic Research Group.
    29. Christoph Laica & Arne Lauber & Marco Sahm, 2017. "Sequential Round-Robin Tournaments with Multiple Prizes," CESifo Working Paper Series 6685, CESifo.
    30. Dieci, Roberto & Schmitt, Noemi & Westerhoff, Frank, 2018. "Interactions between stock, bond and housing markets," Journal of Economic Dynamics and Control, Elsevier, vol. 91(C), pages 43-70.
    31. Lojak, Benjamin, 2016. "Sentiment-driven investment, non-linear corporate debt dynamics and co-existing business cycle regimes," BERG Working Paper Series 112, Bamberg University, Bamberg Economic Research Group.
    32. Ellis Scharfenaker & Gregor Semieniuk, 2017. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 465-499, July.
    33. Sahm, Marco, 2017. "Are Sequential Round-Robin Tournaments Discriminatory?," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168113, Verein für Socialpolitik / German Economic Association.
    34. Sahm, Marco, 2016. "Advance-purchase financing of projects with few buyers," BERG Working Paper Series 118, Bamberg University, Bamberg Economic Research Group.
    35. Hagenhoff, Tim & Lustenhouwer, Joep, 2019. "The Rationality Bias," BERG Working Paper Series 144, Bamberg University, Bamberg Economic Research Group.
    36. Sahm, Marco, 2017. "Risk aversion and prudence in contests," BERG Working Paper Series 120, Bamberg University, Bamberg Economic Research Group.
    37. Alfarano, Simone & Milaković, Mishael & Irle, Albrecht & Kauschke, Jonas, 2012. "A statistical equilibrium model of competitive firms," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 136-149.
    38. Lustenhouwer, Joep & Hagenhoff, Tim, 2019. "The Rationality Bias," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203553, Verein für Socialpolitik / German Economic Association.
    39. Planer-Friedrich, Lisa & Sahm, Marco, 2017. "Strategic corporate social responsibility," BERG Working Paper Series 124, Bamberg University, Bamberg Economic Research Group.
    40. Saur, Marc P. & Schlatterer, Markus G. & Schmitt, Stefanie Yvonne, 2019. "Horizontal product differentiation with limited attentive consumers," BERG Working Paper Series 143, Bamberg University, Bamberg Economic Research Group.
    41. Marco Sahm, 2017. "Are Sequential Round-Robin Tournaments Discriminatory?," CESifo Working Paper Series 6421, CESifo.
    42. Hagenhoff, Tim, 2018. "An aggregate welfare optimizing interest rate rule under heterogeneous expectations," BERG Working Paper Series 139, Bamberg University, Bamberg Economic Research Group.
    43. Lustenhouwer, Joep & Mavromatis, Kostas, 2017. "Fiscal consolidations and finite planning horizons," BERG Working Paper Series 130, Bamberg University, Bamberg Economic Research Group.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Scharfenaker, Ellis, 2020. "Implications of quantal response statistical equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    2. Ellis Scharfenaker, 2022. "Statistical Equilibrium Methods In Analytical Political Economy," Journal of Economic Surveys, Wiley Blackwell, vol. 36(2), pages 276-309, April.
    3. Scharfenaker, Ellis, 2020. "Implications of quantal response statistical equilibrium," Journal of Economic Dynamics and Control, Elsevier, vol. 119(C).
    4. Mundt, Philipp & Alfarano, Simone & Milaković, Mishael, 2020. "Exploiting ergodicity in forecasts of corporate profitability," Journal of Economic Dynamics and Control, Elsevier, vol. 111(C).
    5. David Vidal-Tomás & Alba Ruiz-Buforn & Omar Blanco-Arroyo & Simone Alfarano, 2022. "A Cross-Sectional Analysis of Growth and Profit Rate Distribution: The Spanish Case," Mathematics, MDPI, vol. 10(6), pages 1-20, March.
    6. Juan Melo, 2024. "Decentralized Finance and Local Public Goods: A Bayesian Maximum Entropy Model of School District Spending in the U.S," Papers 2404.17700, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Proaño, Christian R. & Lojak, Benjamin, 2020. "Animal spirits, risk premia and monetary policy at the zero lower bound," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 221-233.
    2. Arata, Yoshiyuki & Mundt, Philipp, 2019. "Topology and formation of production input interlinkages: Evidence from Japanese microdata," BERG Working Paper Series 152, Bamberg University, Bamberg Economic Research Group.
    3. Martin Carolin & Westerhoff Frank, 2019. "Regulating Speculative Housing Markets via Public Housing Construction Programs: Insights from a Heterogeneous Agent Model," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 239(4), pages 627-660, August.
    4. Roberto Dieci & Noemi Schmitt & Frank Westerhoff, 2018. "Steady states, stability and bifurcations in multi-asset market models," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(2), pages 357-378, November.
    5. Hommes, Cars & Lustenhouwer, Joep & Mavromatis, Kostas, 2018. "Fiscal consolidations and heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 173-205.
    6. Christoph March & Marco Sahm, 2019. "The Perks of Being in the Smaller Team: Incentives in Overlapping Contests," CESifo Working Paper Series 7994, CESifo.
    7. Hommes, Cars & Lustenhouwer, Joep, 2019. "Managing unanchored, heterogeneous expectations and liquidity traps," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 1-16.
    8. Lustenhouwer, Joep & Mavromatis, Kostas, 2017. "Fiscal consolidations and finite planning horizons," BERG Working Paper Series 130, Bamberg University, Bamberg Economic Research Group.
    9. March, Christoph & Sahm, Marco, 2018. "Contests as selection mechanisms: The impact of risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 114-131.
    10. Philipp Mundt & Simone Alfarano & Mishael Milaković, 2022. "Survival and the Ergodicity of Corporate Profitability," Management Science, INFORMS, vol. 68(5), pages 3726-3734, May.
    11. Sahm, Marco, 2017. "Are sequential round-robin tournaments discriminatory?," BERG Working Paper Series 121, Bamberg University, Bamberg Economic Research Group.
    12. Mundt, Philipp & Cantner, Uwe & Inoue, Hiroyasu & Savin, Ivan & Vannuccini, Simone, 2021. "Market selection in global value chains," BERG Working Paper Series 170, Bamberg University, Bamberg Economic Research Group.
    13. Sahm, Marco, 2017. "Risk aversion and prudence in contests," BERG Working Paper Series 120, Bamberg University, Bamberg Economic Research Group.
    14. Schulz, Jan & Mayerhoffer, Daniel M., 2021. "A network approach to consumption," BERG Working Paper Series 173, Bamberg University, Bamberg Economic Research Group.
    15. March, Christoph & Sahm, Marco, 2017. "Asymmetric discouragement in asymmetric contests," Economics Letters, Elsevier, vol. 151(C), pages 23-27.
    16. Sahm, Marco, 2016. "Advance-purchase financing of projects with few buyers," BERG Working Paper Series 118, Bamberg University, Bamberg Economic Research Group.
    17. Mundt, Philipp & Oh, Ilfan, 2019. "Asymmetric competition, risk, and return distribution," Economics Letters, Elsevier, vol. 179(C), pages 29-32.
    18. Fu, Qiang & Wang, Xiruo & Wu, Zenan, 2021. "Multi-prize contests with risk-averse players," Games and Economic Behavior, Elsevier, vol. 129(C), pages 513-535.
    19. Mundt, Philipp & Alfarano, Simone & Milaković, Mishael, 2020. "Exploiting ergodicity in forecasts of corporate profitability," Journal of Economic Dynamics and Control, Elsevier, vol. 111(C).
    20. Christian Deutscher & Marco Sahm & Sandra Schneemann & Hendrik Sonnabend, 2022. "Strategic investment decisions in multi-stage contests with heterogeneous players," Theory and Decision, Springer, vol. 93(2), pages 281-317, September.

    More about this item

    Keywords

    return on capital; maximum entropy; asymmetric Subbotin distribution;
    All these keywords.

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

    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:zbw:bamber:145. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bebamde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.