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Entry, Exit, and Imperfect Competition in the Long Run

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  • Rabah Amir

    (CORE)

  • Val E. Lambson

    (Brigham Young University, Provo)

Abstract

An infinite-horizon, stochastic model of entry and exit with sunk costs and imperfect competition is constructed. Simple examples provide insights into: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle. A subgame perfect Nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite-horizon equilibria. This equilibrium has a relatively simple structure characterized by two numbers per finite history. Under very general conditions, it tends to exhibit excessive entry and insufficient exit relative to a social optimum.

Suggested Citation

  • Rabah Amir & Val E. Lambson, 2003. "Entry, Exit, and Imperfect Competition in the Long Run," CIE Discussion Papers 2003-03, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:2003-03
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    References listed on IDEAS

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    Cited by:

    1. Frank H. Page & Myrna H. Wooders, 2009. "Endogenous Network Dynamics," Working Papers 2009.28, Fondazione Eni Enrico Mattei.
    2. Moretto, Michele, 2008. "Competition and irreversible investments under uncertainty," Information Economics and Policy, Elsevier, vol. 20(1), pages 75-88, March.
    3. Amir, Rabah & Lambson, Val E., 2007. "Imperfect competition, integer constraints and industry dynamics," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 261-274, April.
    4. Luo, Guo Ying, 2009. "Irrationality and monopolistic competition: An evolutionary approach," European Economic Review, Elsevier, vol. 53(5), pages 512-526, July.
    5. James E. Prieger, 2005. "The Impact of Cost Changes on Industry Dynamics," Working Papers 51, University of California, Davis, Department of Economics.
    6. Rupayan Pal & Marcella Scrimitore & Ruichao Song, 2023. "Externalities, entry bias, and optimal subsidy policy for cleaner environment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(1), pages 90-122, February.
    7. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899, September.
    8. Laszlo Goerke, 2022. "Endogenous Market Structure and Partisan Competition Authorities," IAAEU Discussion Papers 202201, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    9. Óscar Gutiérrez & Francisco Ruiz‐Aliseda, 2009. "Entry Patterns Over The Product Life Cycle," Manchester School, University of Manchester, vol. 77(5), pages 594-610, September.
    10. Amir, Rabah & De Castro, Luciano & Koutsougeras, Leonidas, 2014. "Free entry versus socially optimal entry," Journal of Economic Theory, Elsevier, vol. 154(C), pages 112-125.
    11. Francisco Ruiz-Aliseda, 2003. "Strategic Commitment Versus Flexibility in a Duopoly with Entry and Exit," Discussion Papers 1379, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    12. Cerboni Baiardi, Lorenzo & Lamantia, Fabio, 2022. "Oligopoly dynamics with isoelastic demand: The joint effects of market saturation and strategic delegation," Chaos, Solitons & Fractals, Elsevier, vol. 158(C).
    13. Bertomeu, Jeremy, 2009. "Endogenous shakeouts," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 435-440, May.
    14. Ruiz-Aliseda, Francisco, 2016. "Preemptive investments under uncertainty, credibility and first mover advantages," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 123-137.
    15. Huang, Bing & Cao, Jiling & Chung, Hyuck, 2014. "Strategic real options with stochastic volatility in a duopoly model," Chaos, Solitons & Fractals, Elsevier, vol. 58(C), pages 40-51.
    16. James E. Prieger, 2005. "The Impact of Cost Changes on Industry Dynamics," Working Papers 165, University of California, Davis, Department of Economics.
    17. Laszlo Goerke, 2022. "Partisan competition authorities, Cournot‐oligopoly, and endogenous market structure," Southern Economic Journal, John Wiley & Sons, vol. 89(1), pages 238-270, July.
    18. Herings, P. Jean-Jacques & Peeters, Ronald & Schinkel, Maarten Pieter, 2005. "Intertemporal market division:: A case of alternating monopoly," European Economic Review, Elsevier, vol. 49(5), pages 1207-1223, July.
    19. Gong, Rui & Page, Frank & Wooders, Myrna, 2015. "Endogenous correlated network dynamics," LSE Research Online Documents on Economics 65098, London School of Economics and Political Science, LSE Library.
    20. Rupayan Pal & Ruichao Song, 2019. "Externalities, entry bias and optimal subsidy policy in oligopoly," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-028, Indira Gandhi Institute of Development Research, Mumbai, India.
    21. Amir, Rabah & Halmenschlager, Christine & Jin, Jim, 2011. "R&D-induced industry polarization and shake-outs," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 386-398, July.
    22. Edeoba William Edobor & Maria I. Marshall, 2021. "Earth, wind, water, fire and man: How disasters impact firm births in the USA," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 107(1), pages 395-421, May.
    23. Vera Ivanova & Philip Ushchev, 2019. "Product Differentiation, Competitive Toughness, and Intertemporal Substitution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1244-1269, July.
    24. James Prieger, 2007. "The Impact of Cost Changes on Industry Entry and Exit," Journal of Economics, Springer, vol. 91(3), pages 211-243, July.
    25. De Monte Enrico, 2024. "Nonparametric Instrumental Regression with Two-Way Fixed Effects," Journal of Econometric Methods, De Gruyter, vol. 13(1), pages 49-66, January.

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    More about this item

    Keywords

    entry; exit; dynamic games; integer constraints;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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