A Simple Model of Sectoral Transitions with Oligopolistic Competition and Endogenous Entry
Date and time
August 30, 2019
14:00 - 15:00
This paper presents a dynamic framework of intra-industry competition: the aim is to explain how sectors respond to entry and exit dynamics. The economy is populated by a finite number of heterogeneous firms, engaged in oligopolistic Cournot competition. Idiosyncratic exit and entry shocks propagate from the firms to the sectoral quantities through adjustments in market shares and price markups. Moreover, the sequence of shocks alters the composition of the industry over time in terms of average firms’ size and productivity. The realized sectoral transition, in which small and unproductive incumbents are substituted by more performing entrants, matches the empirical trends regarding the increase in sectoral concentration and average price markups.