 Investment Dynamics in Markets with Endogenous DemandNo 99-05, Working Papers from Duke University, Department of Economics Abstract: In several interesting markets, demand is an increasing function of past sales because of learning, network externalities, or fashion. This paper examines entry into such markets. The two key elements of the model are that firms are uncertain about the demand (and learn in a Bayesian fashion) and that demand grows endogenously over time. The capacity expansion path of the competitive market is compared with the planning/monopoly solution. These paths differ not only with respect to levels (the market's investment is too low), but also their time patterns (externalities may lead to S-shaped diffusion). This framework provides some justification for industrial or trade policy arguments for subsidizing entry into new markets, especially for infant-export industries. The markets examined also exhibit path-dependence: small initial differences in demand conditions may lead either to an established market or a non-existing one. Date: 1999 Published in JOURNAL OF INDUSTRIAL ECONOMICS, Vol. 48, 2000, pages 189-203 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:99-05 Access Statistics for this paper More papers in Working Papers from Duke University, Department of Economics Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097. |
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