Abbring, Jaap H. Campbell, Jeffrey R. Tilly, Jan Yang, Nan
Year of Publication:
Working Paper 2018-17
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.
demand uncertainty dynamic oligopoly firm entry and exit nested fixed point estimator sunk costs toughness of competition counterfactual policy analysis