Firm entry, excess capacity and endogenous productivity

Anthony Savagar and Huw Dixon

European Economic Review, 2020, vol. 121, issue C

Abstract: We show that sluggish firm entry causes productivity to vary endogenously in response to technology shocks. The endogenous productivity effect is caused by incumbent firms utilizing excess capacity as entry adjusts. We develop a nonparametric model of endogenous sunk costs and monopolistic competition to show that imperfect competition and dynamic entry are necessary and jointly sufficient conditions for endogenous productivity fluctuations. Quantitatively we show the endogenous productivity effect is as large as that from a traditional ‘capital utilization’ effect.

Keywords: Dynamic entry; Endogenous productivity; Continuous time; Imperfect competition (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Firm Entry, Excess Capacity and Aggregate Productivity (2017)
Working Paper: The Effect of Firm Entry on Capacity Utilization and Macroeconomic Productivity (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:121:y:2020:i:c:s0014292119301990

DOI: 10.1016/j.euroecorev.2019.103339

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