Very Simple Markov-Perfect Industry Dynamics

Jaap Abbring, Jeffrey Campbell, Jan Tilly and Nan Yang

No WP-2013-20, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: This paper develops an econometric model of industry dynamics for concentrated markets that can be estimated very quickly from market-level panel data on the number of producers and consumers using a nested fixed-point algorithm. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be calculated from the fixed points of a finite sequence of low-dimensional contraction mappings. Our nested fixed point procedure extends Rust's (1987) to account for the observable implications of mixed strategies on survival. We illustrate the model's empirical application with ten years of County Business Patterns data from the Motion Picture Theaters industry in 573 Micropolitan Statistical Areas. The results are suggestive of fierce competition between theaters in the market for film exhibition rights.

Keywords: demand uncertainty; dynamic oligopoly; firm entry and exit; Markov-perfect equilibrium; nested fixed point estimator; sunk costs; toughness of competition (search for similar items in EconPapers)
JEL-codes: C25 C73 L13 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2013-11-30
New Economics Papers: this item is included in nep-com, nep-ore, nep-sea and nep-tid
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.chicagofed.org/digital_assets/publicati ... s/2013/wp2013_20.pdf Full text (application/pdf)

Related works:
Working Paper: Very Simple Markov-Perfect Industry Dynamics (2016)
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedhwp:wp-2013-20

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().