Entry, Exit, and Imperfect Competition in the Long Run

Rabah AMIR and Val Eugene Lambson

No 2003-03, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: An infinite-horizon, stochastic model of entry and exit with sunk costs and imperfect competition is constructed. Simple examples provide insights into: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle. A subgame perfect Nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite-horizon equilibria. This equilibrium has a relatively simple structure characterized by two numbers per finite history. Under very general conditions, it tends to exhibit excessive entry and insufficient exit relative to a social optimum.

Keywords: entry; exit; dynamic games; integer constraints (search for similar items in EconPapers)
JEL-codes: C73 D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent, nep-ind and nep-mic
Date: 2003-09
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Related works:
Working Paper: Entry, exit, and imperfect competition in the long run (2003)
Working Paper: Entry, Exit, and Imperfect Competition in the Long Run (2003)
Journal Article: Entry, exit, and imperfect competition in the long run (2003)
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