Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2010-01-13
Revision-Date: 2010-10-08
Number: 10-012/3
Author-Name: Dennis Fok
Author-Workplace-Name: Erasmus University Rotterdam
Author-Name: Andre van Stel
Author-Workplace-Name: University of Amsterdam
Author-Name: Andrew Burke
Author-Workplace-Name: Cranfield University, UK
Author-Name: Roy Thurik
Author-Workplace-Name: Erasmus University Rotterdam
Title: Industry Dynamics and Entrepreneurship: An Equilibrium Model
Abstract: This paper conducts the first general equilibrium analysis of the role of entry, exit and profits in industry dynamics.  The benefit of our model is twofold.  First, to discriminate between entrants’ role of performing the entrepreneurial function of creating disequilibrium and the conventional equilibrating role of moving the industry to a new equilibrium.  Second, to discriminate between three aspects of industry dynamics: the effect of entry and exit on market equilibrium, duration of disequilibrium and patterns of adjustment.  Using a rich data set of the retail industry, we construct a dynamic simultaneous equilibrium model of profits, entry and exit.  We find that indeed entrants play an entrepreneurial function causing long periods of disequilibrium after which a new equilibrium is attained.  Moreover, we find ample support for the statement that disequilibrium is the essence of economic progress.
Classification-JEL: B50, J01, L00, L1, L26
Keywords: entry, exit, profits, equilibrium, industrial dynamics, retailing
File-Url: https://papers.tinbergen.nl/10012.pdf
File-Format: application/pdf
File-Size: 265122 bytes
Handle: RePEc:tin:wpaper:20100012