Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86899
Authors: 
Burke, Andrew
van Stel, André
Year of Publication: 
2009
Series/Report no.: 
Tinbergen Institute Discussion Paper 09-005/3
Abstract: 
The main contribution of entrepreneurship theory to economics is to provide an account of market performance in disequilibrium but little empirical research has examined firm entry and exit in this context. We redress this by modelling the interrelationship between firm entry and exit in disequilibrium. Introducing a new methodology we investigate whether this interrelationship differs between market ‘undershooting’ (the actual number of firms is below the equilibrium number) and ‘overshooting’ (vice versa). We find that equilibrium-restoring mechanisms are faster in over than in undershoots. The results imply that in undershoots a lack of competition between incumbent firms contributes to restoration of equilibrium (creating room for new-firm entry) while in overshoots competition induced by new firms (in particular strong displacement) helps restore equilibrium.
Subjects: 
entry
exit
equilibrium
industrial organization
undershooting
overshooting
JEL: 
B50
J01
L00
L1
L26
Document Type: 
Working Paper

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