Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 1998-02-09
Number: 98-011/1
Author-Name: Emmanuel Petrakis
Author-Email: petrakis@eco.uc3m.es
Author-Workplace-Name: Universidad Carlos III de Madrid
Author-Name: Santanu Roy
Author-Email: roy@few.eur.nl
Author-Workplace-Name: Erasmus University
Title: Cost Reducing Investment, Competition and Industry Dynamics
Abstract: We demonstrate the possibility of shake-out of firms and emergence of inter-firmheterogeneity along the (socially optimal) dynamic equilibrium path of a competitive industry with freeentry and exit, even when there is no uncertainty and all firms are ex ante identical with perfectforesight. Atomistic firms with upward sloping marginal cost curves undertake investment in firm-specific cost reduction. They earn negative net profit in early periods, compensated later by strictlypositive net profits; no entry occurs after the initial time period. Some firms may exit before others evenwhile other firms earn positive net profit. 
Classification-JEL: D41; D92; L11; O31
Keywords: Cost Reducing Investment; Industry Dynamics; Learning; Competitive Equilibrium; Shake Out
File-Url: https://papers.tinbergen.nl/98011.pdf
File-Format: application/pdf
File-Size: 146240 bytes
Handle: RePEc:tin:wpaper:19980011