Entry, Exit, and Technological Progress in Markov-Perfect Duopoly

36 Pages Posted: 17 Jul 2015

See all articles by Jaap H. Abbring

Jaap H. Abbring

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); Tinbergen Institute; IZA Institute of Labor Economics

Jeffrey R. Campbell

University of Notre Dame; Tilburg University

Nan Yang

National University of Singapore (NUS) - NUS Business School

Date Written: July 1, 2015

Abstract

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

Abbring, Jaap H. and Campbell, Jeffrey R. and Yang, Nan, Entry, Exit, and Technological Progress in Markov-Perfect Duopoly (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2631549 or http://dx.doi.org/10.2139/ssrn.2631549

Jaap H. Abbring

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/abbring/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/abbring/

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Jeffrey R. Campbell

University of Notre Dame ( email )

United States

Tilburg University ( email )

Tilburg, 5000 LE
Netherlands

Nan Yang (Contact Author)

National University of Singapore (NUS) - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore

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