An Estimable Dynamic Model of Entry, Exit and Growth in Oligopoly Retail Markets

11 Pages Posted: 6 Feb 2007 Last revised: 30 Oct 2016

See all articles by Victor Aguirregabiria

Victor Aguirregabiria

University of Toronto - Department of Economics

Pedro Mira

Centro de Estudios Monetarios y Financieros (CEMFI)

Hernan Roman

Universidad de los Andes, Chile - ESE Business School

Date Written: May 1, 2007

Abstract

This paper presents an estimable dynamic structural model of an oligopoly retail industry. The model can be estimated using panel data of local retail markets with information on new entries, exits and the size and growth of incumbent firms. In our model, retail firms are vertically and horizontally differentiated, compete in prices, make investments to improve the quality of their businesses, and decide to exit or to continue in the market. The model extends in two important ways the entry-exit model estimated in Aguirregabiria and Mira (2007). First, it includes firm size and growth as endogenous variables. And second, the empirical model has two sources of permanent unobserved heterogeneity: local-market heterogeneity and firm heterogeneity. This allows the researcher to control for potentially important sources of bias when using firm panel data with many local markets and several time periods.

Keywords: Industry dynamics, Oligopoly retail markets, Structural estimation

JEL Classification: L11, L13, C51

Suggested Citation

Aguirregabiria, Victor and Mira, Pedro and Roman, Hernan, An Estimable Dynamic Model of Entry, Exit and Growth in Oligopoly Retail Markets (May 1, 2007). American Economic Review, Vol. 97, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=960718 or http://dx.doi.org/10.2139/ssrn.960718

Victor Aguirregabiria (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
4169784358 (Phone)

HOME PAGE: http://individual.utoronto.ca/vaguirre/

Pedro Mira

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

Hernan Roman

Universidad de los Andes, Chile - ESE Business School ( email )

Av. La Plaza 1905
San Carlos de Apoquindo, Las Condes
Santiago
Chile

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