Firm Entry, Excess Capacity and Aggregate Productivity

Anthony Savagar and Huw Dixon

No E2017/8, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: Slow firm entry over the business cycle causes measured TFP to vary endogenously because incumbent firms bear shocks. Our main theorem states that imperfect competition and dynamic firm entry are necessary and sufficient conditions for these endogenous productivity fluctuations. The result focuses on the short-run absence of entry and incumbents' output response given this quasi-fixity. Quantitatively we show the endogenous productivity effect is as large as a traditional capital utilization effect.

Keywords: dynamic entry; endogenous productivity; endogenous sunk costs; business stealing; business cycle; continuous time (search for similar items in EconPapers)
JEL-codes: C62 D21 D43 E32 L13 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-08
New Economics Papers: this item is included in nep-bec, nep-dge, nep-eff, nep-ent, nep-ino, nep-mac and nep-sbm
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Firm entry, excess capacity and endogenous productivity (2020)
Working Paper: The Effect of Firm Entry on Capacity Utilization and Macroeconomic Productivity (2017)
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