Very Simple Markov-Perfect Industry Dynamics: Theory

Computable Markov-perfect industry dynamics

We provide a general model of dynamic competition in an oligopolistic industry with investment, entry, and exit. To ensure that there exists a computationally tractable Markov perfect equilibrium, we introduce firm heterogeneity in the form of randomly drawn, privately known scrap values and setup costs into the model. Our game of incomplete information always has an equilibrium in cutoff entry...

Markov-Perfect Industry Dynamics: Theory, Computation, and Applications

Computable Markov - Perfect Industry Dynamics – Online Appendix –

... we have experimented quite a bit with the core version of the algorithm, and we never found two sets of equilibrium policies for a given set of primitives (we frequently run the algorithm several times using different initial conditions or different orderings of points looking for other equilibria that might exist). We should emphasize here that the core version, and indeed most other versi...

Foundations of Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity∗

In this paper we show that existence of a Markov perfect equilibrium (MPE) in the Ericson & Pakes (1995) model of dynamic competition in an oligopolistic industry with investment, entry, and exit requires admissibility of mixed entry/exit strategies, contrary to Ericson & Pakes’s (1995) assertion. This is problematic because the existing algorithms cannot cope with mixed strategies. To establis...

Markov Perfect Industry Dynamics with Many Firms - Technical Appendix

Proof of Lemma A.3. Let Assumptions 3.2 and 3.3 hold. Assume that firms follow a common oblivious strategy µ ∈ ˜ M, the expected entry rate is λ ∈ ˜ Λ, and the expected time that each firm spends in the industry is finite. Let {Z x : x ∈ N} be a sequence of independent Poisson random variables with means {˜s µ,λ (x) : x ∈ N}, and let Z be a Poisson random variable with mean x∈N˜s µ,λ (x). Then,...