Entry and shakeout in dynamic oligopoly

Paul Hünermund, Philipp Schmidt-Dengler and Yuya Takahashi

No 14-116, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm efficiency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model generates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.

Keywords: Life Cycle; Dynamic Oligopoly; Preemption; War of Attrition; Penicillin (search for similar items in EconPapers)
JEL-codes: L11 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-bec, nep-com, nep-dge and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Entry and Shakeout in Dynamic Oligopoly (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:14116

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