Entry, Exit, and Imperfect Competition in the Long Run

CORE Discussion Paper No. 2003/66

31 Pages Posted: 3 Jun 2007

See all articles by Rabah Amir

Rabah Amir

University of Arizona - Department of Economics; University of Arizona

Val E. Lambson

Brigham Young University - Department of Economics

Date Written: September 2003

Abstract

An infinite-horizon, stochastic model of entry and exit with sunk costs and imperfect competition is constructed. Simple examples provide insights into: (1) the relationship between sunk costs and industry concentration, (2) entry when current profits are negative, and (3) the relationship between entry and the length of the product cycle. A subgame perfect Nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite-horizon equilibria. This equilibrium has a relatively simple structure characterized by two numbers per finite history. Under very general conditions, it tends to exhibit excessive entry and insufficient exit relative to a social optimum.

Keywords: Entry, Exit, Dynamic games, Integer constraints

JEL Classification: C73, D43, L13

Suggested Citation

Amir, Rabah and Lambson, Val Eugene, Entry, Exit, and Imperfect Competition in the Long Run (September 2003). Available at SSRN: https://ssrn.com/abstract=989929 or http://dx.doi.org/10.2139/ssrn.989929

Rabah Amir (Contact Author)

University of Arizona - Department of Economics ( email )

Tucson, AZ 85721
United States

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Val Eugene Lambson

Brigham Young University - Department of Economics ( email )

130 Faculty Office Bldg.
Provo, UT 84602-2363
United States
801-378-7765 (Phone)

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