Industry Dynamics and Entrepreneurship: An Equilibrium Model

Tinbergen Institute Discussion Paper 10-012/3

21 Pages Posted: 25 Jan 2010

See all articles by D. Fok

D. Fok

Econometric Institute - Erasmus University Rotterdam; Erasmus Research Institute of Management (ERIM); Tinbergen Institute Rotterdam

Andre van Stel

Panteia

Andrew E. Burke

Cranfield University - School of Management

Roy Thurik

Montpellier Business School; Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC); Erasmus Research Institute of Management (ERIM); EIM Netherlands - Business and Policy Research; Tinbergen Institute

Date Written: January 11, 2010

Abstract

This paper conducts the first general equilibrium analysis of the role of entry, exit and profits in industry dynamics. The benefit of our model is twofold. First, to discriminate between entrants' role of performing the entrepreneurial function of creating disequilibrium and the conventional equilibrating role of moving the industry to a new equilibrium. Second, to discriminate between three aspects of industry dynamics: The effect of entry and exit on market equilibrium, duration of disequilibrium and patterns of adjustment. Using a rich data set of the retail industry, we construct a dynamic simultaneous equilibrium model of profits, entry and exit. We find that indeed entrants play an entrepreneurial function causing long periods of disequilibrium after which a new equilibrium is attained. Moreover, we find ample support for the statement that disequilibrium is the essence of economic progress.

Keywords: entry, exit, profits, equilibrium, industrial dynamics, retailing

JEL Classification: B50, J01, L00, L1, L26

Suggested Citation

Fok, Dennis and Stel, Andre van and Burke, Andrew E. and Thurik, Roy, Industry Dynamics and Entrepreneurship: An Equilibrium Model (January 11, 2010). Tinbergen Institute Discussion Paper 10-012/3. Available at SSRN: https://ssrn.com/abstract=1541926 or http://dx.doi.org/10.2139/ssrn.1541926

Dennis Fok (Contact Author)

Econometric Institute - Erasmus University Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1333 (Phone)
+31 10 408 9162 (Fax)

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Andre van Stel

Panteia

Postbus 7001
Zoetermeer, 2701
Germany

Andrew E. Burke

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

HOME PAGE: http://www.som.cranfield.ac.uk/som/faculty/Showfaculty.asp?link=420

Roy Thurik

Montpellier Business School

France

Erasmus University Rotterdam (EUR) - Centre for Advanced Small Business Economics (CASBEC) ( email )

3000 DR Rotterdam
Netherlands
+31 10 408 2232 (Phone)
+31 10 408 9146 (Fax)

HOME PAGE: http://www.thurik.com

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

EIM Netherlands - Business and Policy Research

Postbus 7001
2701 AA Zoetermeer
Netherlands
+31 79 341 3634 (Phone)
+31 79 331 3742 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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