Federal Reserve Bank of Chicago
Working Paper Series
Very Simple Markov-Perfect Industry Dynamics: Empirics
This paper develops an econometric model of firm entry, competition, and exit in oligopolistic markets. The model has an essentially unique symmetric Markov-perfect equilibrium, which can be computed very quickly. We show that its primitives are identified from market-level data on the number of active firms and demand shifters, and we implement a nested fixed point procedure for its estimation. Estimates from County Business Patterns data on U.S. local cinema markets point to tough local competition. Sunk costs make the industry's transition following a permanent demand shock last 10 to 15 years.
Cite this item
Jaap H. Abbring & Jeffrey R. Campbell & Jan Tilly & Nan Yang, Very Simple Markov-Perfect Industry Dynamics: Empirics, Federal Reserve Bank of Chicago, Working Paper Series WP-2018-17, 24 Jul 2018.
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
Keywords: demand uncertainty; dynamic oligopoly; firm entry and exit; nested fixed point; estimator; sunk costs; toughness of competition; counterfactual policy analysis; Markov process
This item with handle RePEc:fip:fedhwp:wp-2018-17
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