The great industry gamble: market structure dynamics as a survival contest

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122 Downloads (Pure)

Abstract

Industry dynamics are studied as an endogenous tournament with infinite horizon and stochastic entry. In each period, firms' investments determine their probability of surviving into the next period. This generates a survival contest, which fuels market structure dynamics, while the evolution of market structure constantly redefines the contest. More concentrated markets endogenously generate less profit, rivals that are more difficult to outlive, and more entry. The unique steady state distribution exhibits ongoing turbulence, correlated exit and entry rates and shake-outs. The model's predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure (e.g. banking).
Original languageEnglish
Pages (from-to)348-367
Number of pages20
JournalRAND Journal of Economics
Volume43
Issue number2
Early online date18 Jun 2012
DOIs
Publication statusPublished - 2012

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Gambles
Contests
Market structure
Industry
Profit
Prediction model
Tournament
Entry and exit
Trade-offs
Turbulence
Infinite horizon
Banking
Firm investment
Industry dynamics

Cite this

The great industry gamble: market structure dynamics as a survival contest. / Tóth , Áron .

In: RAND Journal of Economics, Vol. 43, No. 2, 2012, p. 348-367.

Research output: Contribution to journalArticle

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