Very Simple Markov-Perfect Industry Dynamics: Empirics

Jaap Abbring, Jeffrey Campbell, Jan Tilly and Nan Yang

No WP-2018-17, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 years.

Keywords: demand uncertainty; dynamic oligopoly; firm entry and exit; nested fixed point; estimator; sunk costs; toughness of competition; counterfactual policy analysis; Markov process (search for similar items in EconPapers)
JEL-codes: C25 C73 L13 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2018-07-24
New Economics Papers: this item is included in nep-bec, nep-com, nep-ore and nep-sea
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-2018-17

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DOI: 10.21033/wp-2018-17

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