Cost reducing investiment, competition and industry dynamics

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Show simple item record Petrakis, Emmanuel Roy, Santanu
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía 2009-05-04T14:26:24Z 2009-05-04T14:26:24Z 1996-10
dc.identifier.issn 2340-5031
dc.description.abstract We characterize the dynamic equilibrium path ofa competitive industry with free entry and exit, where atomistic fmns undertake investment over time in order to reduce their future production costs. Investment reduces both total as well as marginal cost of production; however, the associated dynamic scale economies are eventually bounded. Cost reduction is deterministic and there are no inter-firm spill-overs. Marginal cost in any time period is stricdy increasing in output and active firms incur a positive fixed cost even if no output is produced. The industry equilibrium path is socially optimal. Equilibrium prices are (weakly) decreasing over time. Firms invest in cost reduction and eam negative net profit when they are young. In later periods, they face prices aboye their mínimum average cost, produce beyond their mínimum efficient scale and eam strictly positive net profit. No frrm enters after the initial time periodo Though all fmns are ex ante identical, sorne fmns may exit before others (shake-out). Exiting fmns have relatively "small size" compared to incumbents; as the industry matures, concentration and the average size of incumbent fmns increase. Heterogeneity in behaviour and size of fmns emerges endogenously through differences in their length of stay in the industry.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working Paper. Economics
dc.relation.ispartofseries 1996-62-28
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.subject.other Cost Reduction
dc.subject.other Investment
dc.subject.other Learning
dc.subject.other Dynamic Competitive Equilibrium
dc.subject.other Shake Out
dc.title Cost reducing investiment, competition and industry dynamics
dc.type workingPaper
dc.subject.eciencia Economía
dc.rights.accessRights openAccess
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