Very Simple Markov-Perfect Industry Dynamics

Nan Yang, Jeffrey Campbell, Jan Tilly and Jaap Abbring
Additional contact information
Nan Yang: Business School, National University of
Jan Tilly: University of Pennsylvania

No 673, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops an econometric model of firm entry, competition, and exit in dynamic oligopolistic markets. The model entertains market-level demand and cost shocks, sunk entry costs, and parameters that capture economic barriers to entry and the toughness of price competition. Nevertheless its analysis is very simple, because it takes firms to be homogenous. We show that the model has an essentially unique symmetric Markov-perfect equilibrium that can be computed quickly by solving a finite- sequence of low-dimensional contraction mappings. We develop a nested fixed-point procedure for the model's maximum-likelihood estimation from market-level panel data and compare the procedure's performance to that of a mathematical programming with equilibrium constraints approach. The framework is rich enough for a range of applications, such as the welfare analysis of licensing requirements, start-up subsidies, and environmental laws. Moreover, its analysis provides a starting point for the solution of more general models.

Date: 2013
New Economics Papers: this item is included in nep-com and nep-dge
References: Add references at CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2013/paper_673.pdf (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:red:sed013:673

Access Statistics for this paper

More papers in 2013 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().