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on Technology and Industrial Dynamics |
| By: | Timothy Dunne; Shawn Klimek; Mark Roberts; Daniel Yi Xu |
| Abstract: | Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly. |
| Keywords: | entry, exit, market structure, competition, service industry |
| JEL: | L11 L13 L84 |
| Date: | 2009–09 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:09-23&r=tid |
| By: | Giovanni Dosi; Richard R. Nelson |
| Abstract: | This work prepared for B. Hall and N. Rosenberg (eds.) Handbook of Innovation, Elsevier (2010), lays out the basic premises of this research and review and integrate much of what has been learned on the processes of technological evolution, their main features and their effects on the evolution of industries. First, we map and integrate the various pieces of evidence concerning the nature and structure of technological knowledge the sources of novel opportunities, the dynamics through which they are tapped and the revealed outcomes in terms of advances in production techniques and product characteristics. Explicit recognition of the evolutionary manners through which technological change proceed has also profound implications for the way economists theorize about and analyze a number of topics central to the discipline. One is the theory of the firm in industries where technological and organizational innovation is important. Indeed a large literature has grown up on this topic, addressing the nature of the technological and organizational capabilities which business firms embody and the ways they evolve over time. Another domain concerns the nature of competition in such industries, wherein innovation and diffusion affect growth and survival probabilities of heterogeneous firms, and, relatedly, the determinants of industrial structure. The processes of knowledge accumulation and diffusion involve winners and losers, changing distributions of competitive abilities across different firms, and, with that, changing industrial structures. Both the sector-specific characteristics of technologies and their degrees of maturity over their life cycles influence the patterns of industrial organization ? including of course size distributions, degrees of concentration, relative importance of incumbents and entrants, etc. This is the second set of topics which we address. Finally, in the conclusions, we briefly flag some fundamental aspects of economic growth and development as an innovation driven evolutionary process. |
| Keywords: | Innovation, Technological paradigms, Technological regimes and trajectories, Evolution, Learning, Capability-based theories of the firm, Selection, Industrial dynamics, Emergent properties, Endogenous growth |
| Date: | 2009–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2009/07&r=tid |
| By: | Prokop, Jacek; Regibeau, Pierre; Rockett, Katharine |
| Abstract: | The authors examine the timing and quality of product introduction in an R&D stopping game, where they allow for horizontal and vertical differentiation in the product market. They observe that discontinuous changes in introduction dates can occur as firms' abilities as researchers change. Further, the authors observe differences in the social optimality of entry patterns depending on the underlying research abilities of the firms. Minimum quality standards and novelty requirements can play a role in correcting these suboptimal patterns of entry. The authors find that increasing the novelty requirement does not necessarily increase either the profits or, consequently, the investment levels of the initial innovator, contrary to much of the cumulative innovation literature. When the research abilities of the firms differ, either the high ability firm or the low ability firm may be the first mover. Policy interventions have much more ambiguous welfare effects in this asymmetric case, as they can change the order of entry. |
| Keywords: | Innovation,minimum quality standards,novelty requirements,stopping game |
| JEL: | L15 L16 O31 O33 O34 |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:200933&r=tid |
| By: | John Hutchinson (European Central Bank); Jozef Konings (Economics Department, K.U. Leuven); Patrick Paul Walsh (SPIRe and The Geary Institute University College Dublin) |
| Abstract: | We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. As in Klepper and Thompson (2006) and Sutton (1998), we explore whether time to build a portfolio of products is a mechanism that relates age to firm size. While inter industry diversification, to some extent, accounts for the role of age, we find that the presence of economies of scope has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques in Cabral and Mata's we show that the FSD by degrees of product diversification shifts to the right, but more so in older age groups. This shows a role for inter-industry diversification over and above an age effect. |
| JEL: | L10 L11 L16 |
| Date: | 2009–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:ucd:wpaper:200926&r=tid |