Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/85409 
Year of Publication: 
1998
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 98-011/1
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
We demonstrate the possibility of shake-out of firms and emergence of inter-firmheterogeneity along the (socially optimal) dynamic equilibrium path of a competitive industry with freeentry and exit, even when there is no uncertainty and all firms are ex ante identical with perfectforesight. Atomistic firms with upward sloping marginal cost curves undertake investment in firm-specific cost reduction. They earn negative net profit in early periods, compensated later by strictlypositive net profits; no entry occurs after the initial time period. Some firms may exit before others evenwhile other firms earn positive net profit.
Subjects: 
Cost Reducing Investment
Industry Dynamics
Learning
Competitive Equilibrium
Shake Out
JEL: 
D41
D92
L11
O31
Document Type: 
Working Paper

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