Open Versus Closed Firms and the Dynamics of Industry Evolution

29 Pages Posted: 14 Sep 2007

See all articles by Farasat A. S. Bokhari

Farasat A. S. Bokhari

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Competition Policy

Abstract

We develop a model of industry evolution in which firms choose proprietary standards (closed firm) or adopt a common standard (open firm). A closed entrant can capture multiple profits whereas an open entrant faces lower entry barriers: The odds of closed entry (relative to open entry) decrease with price and eventually open entry becomes more likely. While initially closed firms have better survival because they can offset losses in one component with profits from another, the situation is reversed when prices fall below a threshold. These entry and exit dynamics can lead the industry away from its long run equilibrium.

Suggested Citation

Bokhari, Farasat A. S., Open Versus Closed Firms and the Dynamics of Industry Evolution. The Journal of Industrial Economics, Vol. 55, Issue 3, pp. 499-527, September 2007. Available at SSRN: https://ssrn.com/abstract=1013735 or http://dx.doi.org/10.1111/j.1467-6451.2007.00321.x

Farasat A. S. Bokhari

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

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