Cost Reducing Investment, Competition and Industry Dynamics

Emmanuel Petrakis and Santanu Roy

No 98-011/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We demonstrate the possibility of shake-out of firms and emergence of inter-firmheterogeneity along the (socially optimal) dynamic equilibrium path of a competitive industry with freeentry and exit, even when there is no uncertainty and all firms are ex ante identical with perfectforesight. Atomistic firms with upward sloping marginal cost curves undertake investment in firm-specific cost reduction. They earn negative net profit in early periods, compensated later by strictlypositive net profits; no entry occurs after the initial time period. Some firms may exit before others evenwhile other firms earn positive net profit.

Keywords: Cost Reducing Investment; Industry Dynamics; Learning; Competitive Equilibrium; Shake Out (search for similar items in EconPapers)
JEL-codes: D41 D92 L11 O31 (search for similar items in EconPapers)
Date: 1998-02-09
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Related works:
Journal Article: Cost-Reducing Investment, Competition, and Industry Dynamics (1999)
Working Paper: Cost reducing investiment, competition and industry dynamics (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:19980011

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