This is a revised version of various chapters of my PhD dissertation at the University of Warwick. I am greatly indebted to my supervisors Claudio Mezzetti and Margaret Slade. I have received helpful advice from Marcus Asplund, Heski Bar-Isaac, Amrita Dhillon, Shasi Nandeibam, Matthew Rablen, Carlos Daniel Santos, Daniel Sgroi, Will Speller, Michael Waldman, and participants in a number of seminars. I also thank the editor, Ali Hortaçsu, and two anonymous referees for useful comments and suggestions. Financial support from the Economics Department at the University of Warwick is gratefully acknowledged. All remaining errors are mine.
The great industry gamble: market structure dynamics as a survival contest
Article first published online: 19 JUN 2012
© 2012, RAND.
The RAND Journal of Economics
Volume 43, Issue 2, pages 348–367, Summer 2012
How to Cite
Tóth, Á. (2012), The great industry gamble: market structure dynamics as a survival contest. The RAND Journal of Economics, 43: 348–367. doi: 10.1111/j.1756-2171.2012.00169.x
- Issue published online: 19 JUN 2012
- Article first published online: 19 JUN 2012
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 shakeouts. The model’s predictions fit empirical findings in markets where firms trade off profits for smaller risk of failure (e.g., banking).