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

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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
Issue number2
Early online date18 Jun 2012
Publication statusPublished - 2012


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