Entry and shakeout in dynamic oligopoly


Hünermund, Paul ; Schmidt-Dengler, Philipp ; Takahashi, Yuya


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URL: https://ub-madoc.bib.uni-mannheim.de/37464
URN: urn:nbn:de:bsz:180-madoc-374641
Document Type: Working paper
Year of publication: 2014
The title of a journal, publication series: ZEW Discussion Papers
Volume: 14-116
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: L11 , O,
Keywords (English): Life cycle , dynamic oligopoly , preemption , war of attrition , penicillin
Abstract: In many industries, the number of firms evolves non-monotonically over time. A phase of rapid entry is followed by an industry shakeout: a large number of firms exit within a short period. We present a simple timing game of entry and exit with an exogenous technological process governing firm effi- ciency. We calibrate our model to data from the post World War II penicillin industry. The equilibrium dynamics of the calibrated model closely match the patterns observed in many industries. In particular, our model gener- ates richer and more realistic dynamics than competitive models previously analyzed. The entry phase is characterized by preemption motives while the shakeout phase mimics a war of attrition. We show that dynamic strategic incentives accelerate early entry and trigger the shakeout by comparing a Markov Perfect Equilibrium to an Open-loop Equilibrium.

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Hünermund, Paul ; Schmidt-Dengler, Philipp ; Takahashi, Yuya (2014) Entry and shakeout in dynamic oligopoly. Open Access ZEW Discussion Papers Mannheim 14-116 [Working paper]
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