Industry Dynamics with Knowledge-Based Competition: A Computational Study of Entry and Exit Patterns

Abstract

I propose a computational model of industry evolution capable of matching many stylized facts. It views the firm as a myopic but adaptive entity whose survival depends on its ability to perform various activities with greater efficiency than its rivals. In this model, the shakeout pattern arises naturally in the early stage of industrial development. I provide a full comparative dynamics analysis of how various industry-specific factors determine the numbers and the rates of entries and exits over time as well as the ages of the exiting firms.

Keywords: Industry Dynamics, Shakeouts, Innovation, Imitation, Agent-Based Computational Model

JEL Classification: L10, O30