Very Simple Markov-Perfect Industry Dynamics

Jaap Abbring, Jeffrey Campbell, Nan Yang and Jan Tilly

No 11069, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper develops an econometric model of oligopoly dynamics that can be estimated very quickly from market-level observations of demand shifters and the number of producers. We show that the model has an essentially unique symmetric Markov-perfect equilibrium and provide an algorithm that calculates it quickly. We embed this algorithm in a nested fixed point estimation procedure and apply the result to U.S. local cinema markets. Estimates from County Business Patterns data point to very tough competition for film exhibition rights. 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 (search for similar items in EconPapers)
JEL-codes: C25 C73 L13 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-com, nep-gth and nep-ore
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Related works:
Working Paper: Very Simple Markov-Perfect Industry Dynamics (2014)
Working Paper: Very Simple Markov-Perfect Industry Dynamics (2014)
Working Paper: Very Simple Markov-Perfect Industry Dynamics (2013)
Working Paper: Very Simple Markov-Perfect Industry Dynamics (2013)
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