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Very Simple Markov-Perfect Industry Dynamics
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.
AUTHORS: Tilly, Jan; Yang, Nan; Abbring, Jaap H.; Campbell, Jeffrey R.
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.
AUTHORS: Tilly, Jan; Campbell, Jeffrey R.; Abbring, Jaap H.; Yang, Nan