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Last-In First-Out Oligopoly Dynamics

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Author Info
Jaap H. Abbring
Jeffrey R. Campbell

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Abstract

This paper extends the static analysis of oligopoly structure into an infinite-horizon setting with sunk costs and demand uncertainty. The observation that exit rates decline with firm age motivates the assumption of last-in first-out dynamics: An entrant expects to produce no longer than any incumbent. This selects an essentially unique Markov-perfect equilibrium. With mild restrictions on the demand shocks, sequences of thresholds describe firms' equilibrium entry and survival decisions. Bresnahan and Reiss's (1993) empirical analysis of oligopolists' entry and exit assumes that such thresholds govern the evolution of the number of competitors. Our analysis provides an infinite-horizon game-theoretic foundation for that structure.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14674.

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Date of creation: Jan 2009
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Handle: RePEc:nbr:nberwo:14674

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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  1. Jaap H. Abbring & Jeffrey R. Campbell, 2006. "Oligopoly dynamics with barriers to entry," Working Paper Series WP-06-29, Federal Reserve Bank of Chicago. [Downloadable!]
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This page was last updated on 2009-11-13.

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