Entry, Exit, and Technological Progress in Markov-Perfect Duopoly
36 Pages Posted: 17 Jul 2015
Date Written: July 1, 2015
This paper establishes the existence and uniqueness of an intuitively-refined Markov-Perfect Equilibrium in a richly-specified dynamic duopoly model of entry and exit. We develop an algorithm that computes it very quickly, which makes the model useful for experiments that use many parameter configurations. Researchers can parametrize the sunk costs, technological development process, demand process, and product market competition to suit a particular policy analysis.
Keywords: Sunk costs, Demand uncertainty, Technology shocks, Equilibrium computation, Equilibrium uniqueness
JEL Classification: L13
Suggested Citation: Suggested Citation