A Quantal Response Model of Firm Competition
No 1507, Working Papers from New School for Social Research, Department of Economics
The distribution of pro t rates in the U.S. economy for 21,714 rms from 1962 - 2012 appears to be highly organized in a Laplace-like distribution. Pos- itive pro t rate deviations from the mode appear to be remarkably stationary over time displaying little parametric changes while negative pro t rate devi- ations introduce an asymmetry into the distribution that appears to uctuate over time. In this paper I propose a model of \classically" competitive rms facing informational entropy constraints in their decisions to potentially enter or exit markets based on pro t rate di erentials. The result is a three parameter logit quantal response distribution for rm entry and exit decisions. Bayesian methods are used for inference into the the distribution of entry and exit deci- sions conditional on pro t rate deviations and rm level data from Compustat is used to test these predictions. The model parameters show a uctuating asymmetry in rm exit decisions, an increase in dispersion of negative pro t rate di erentials, and a falling general rate of pro t.
Keywords: Firm competition; Laplace distribution; Gibbs sampler; pro t rate; statistical equilibrium; rational inattention; information theory; quantal response (search for similar items in EconPapers)
JEL-codes: C10 C15 D20 D22 E10 L11 (search for similar items in EconPapers)
Pages: 27 pages
New Economics Papers: this item is included in nep-com, nep-ecm and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_072015.pdf First version, 2015 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1507
Access Statistics for this paper
More papers in Working Papers from New School for Social Research, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mark Setterfield ().