does the fourth entrant make any difference entry and competition in the early u s broadband market abstract we study the importance of sunk costs in determining entry conditions and inferences about firm conduct in an adapted bresnahan and reiss 1991 1994 framework in our framework entrants incur sunk costs to enter while incumbents disregard these costs in deciding on continuation or exit we apply this framework to study entry and competition in the local u s broadband markets from 1999 to 2003 ignoring sunk costs generates unreasonable variation in firms competitive conduct over time this variation disappears when entry costs are allowed once the market has one to three incumbent firms the fourth entrant has little effect on competitive conduct

buyer search costs and endogenous product design buyer search costs for price are changing in many markets through a model of buyer and seller behavior i consider the effects of changing search costs on prices both when product differentiation is fixed and when it is endogenously determined in equilibrium if firms cannot change product design lower buyer search costs for price lead to increased price competition however if product design is a decision variable lower search costs for price may also lead to higher product differentiation which decreases price competition in this case the overall effect of lower buyer search costs for price may even be higher prices lower social welfare and higher industry profits the result is especially interesting because recent technological changes such as internet shopping can affect the market structure through lowering buyer search costs

market entry strategy under firm heterogeneity and asymmetric payoffs how should a firm decide whether or not to enter an untested market when a competing firm is vying for the same market should a firm always speed to the market in an effort to capitalize on pioneering advantages we address those questions by developing a simple game theoretical model that captures the most essential factors in a firm s market entry decision such as market uncertainty firm heterogeneity competition cannibalization and order of entry effects our analysis shows that in a competitive context both pioneering advantages and laggard s disadvantages can motivate a firm to speed to an untested market therefore pioneering advantages alone are not an adequate guide for a firm to formulate its market entry strategy the optimal decision may call for a firm to be a prudent laggard when pioneering advantages to the firm are substantial or to become a market pioneer when facing pioneering disadvantages we characterize different patterns of market entry as equilibrium outcomes for different configurations of the market reward structure and offer a conceptual framework for formulating market entry strategies that go beyond the conventional dichotomy speed or wait we show that the paradoxical phenomenon of disadvantaged pioneers can arise in a competitive context as the outcome of rational firms making rational choices to show that pioneering advantages alone are not the right litmus test for market entry decisions we apply our general framework to a concrete case where consumer preference or the premium that consumers are willing to pay for the pioneering brand gives rise to pioneering advantages and laggard s disadvantages we conclude that the firm with a larger pioneering premium may choose to wait while a firm with a smaller pioneering premium speeds to the market our analysis also sheds light on empirical research on pioneering advantages because firms may race into a market solely to avoid laggard s disadvantages rather than to capture pioneering advantages pioneers are not necessarily the firms best positioned to establish exploit and maintain pioneering advantages therefore it is not surprising that a significant percentage of pioneers fail as documented by recent empirical research our normative investigation further suggests that this predicament in empirical research will not disappear even if we have complete data use the right measurements and employ perfect statistical techniques therefore it is perhaps more fruitful to redirect our research effort in the search for pioneering advantages finally we extend our analysis to incorporate the effect of cannibalization on an incumbent firm s market entry strategy we conclude that cannibalization can motivate an incumbent firm to wait as the conventional wisdom suggests but it can also be an impetus for a firm to become a market pioneer we offer supporting evidence for our analysis and discuss managerial implications of our conclusions

competitor see competitor do incumbent entry in new market niches the ability to keep up with changing technology is critical for a company s long term survival however companies have to balance the risk of rushing into new areas and potentially cannibalizing their existing business against the risk of missing the emerging market this paper investigates when incumbents enter into new market niches created by technological innovation we argue that market conditions and company specific characteristics do not suffice to explain incumbents entry timing but that entry is a contagious process our results demonstrate that incumbents are more likely to respond to innovations in their industry when their counterparts do so in particular we show that incumbents are affected by the entry of firms that are similar in size and resources when a highly similar company enters the new market it raises the probability that the company enters itself beyond levels based solely on the attractiveness of the market

anomalies risk aversion economists ubiquitously employ a simple and elegant explanation for risk aversion it derives from the concavity of the utility of wealth function within the expected utility framework we show that this explanation is not plausible in most applications since anything more than economically negligible risk aversion over moderate stakes requires a utility of wealth function that is so concave that it predicts absurdly severe risk aversion over very large stakes we present examples of how the expected utility framework has misled economists and why we believe a better explanation for risk aversion must incorporate loss aversion and mental accounting

the market evolution and sales takeoff of product innovations in contrast to the prevailing supply side explanation that price decreases are the key driver of a sales takeoff we argue that outward shifting supplyand demand curves lead to market takeoff our fundamental idea is that sales in new markets are initially low because the first commercialized forms of new innovations are primitive then as new firms enter actual and perceived product quality improves and prices possibly drop which leads to a takeoff in sales to provide empirical evidence for this explanation we explore the relationship between takeoff times price decreases and firm entry for a sample of consumer and industrial product innovations commercialized in the united states over the past 150 years based on a proportional hazards analysis of takeoff times we find that new firm entry dominates other factors in explaining observed sales takeoff times we interpret these results as supporting the idea that demand shifts during the early evolution of a new market due to nonprice factors is the key driver of a sales takeoff

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

what is the economic cost of the investment home bias overinvesting domestically is well known as an investment home bias ihb we define an economic home bias ehb whereby the ihb measures the investment weights and the ehb measures the economic cost induced by the ihb we may have a large ihb and a negligible ehb with the increase in the average correlation between foreign markets from 0 4 for the decade ending in 1988 to about 0 9 for more recent decades the u s ehb is becoming negligible despite the domestic investment of 77 5 since 2009 the correlations have decreased indicating that the hb puzzle is emerging once again

empirical research on discrete choice game theory models of entry an illustration abstract we discuss the empirical implementation of discrete game theoretic models of firm entry after presenting a simple model of entry that underlies much of existing empirical analysis we discuss the major problems that must be tackled when empirically implementing theoretical models and econometric methods used in the literature finally we present results from a reduced form estimation of a sequential move entry game using data from the uk hamburger market

competitive outcomes in product differentiated oligopoly structure firms anticipate the competitive effects of market structure when making their entry and product type decisions the market structure variables used to explain the observed outcomes therefore derive from the related entry and product choice stage of the game as a result it is crucial to allow for correlation between unobserved factors that affect the entry and product type decisions of firms and unobservables in the outcome regressions to correct for the potential bias caused by this correlation an econometric model of equilibrium market structure is employed as a selection equation in a two step estimation procedure the second step outcome regressions are modified to reflect the market structure selection this alternative approach emphasizes the logical relationship among firms entry and product choice behavior market structure and price competition following this introduction i provide some background for the analysis of competitive outcomes in motel oligopolies section iii presents the two step estimation procedure developed to measure the effects of concentration and differentiation on outcomes this procedure is used to analyze the observed outcomes of motels located along interstate highways the data are outlined in section iv in section v i present the estimation results evidence from the analysis of these outcomes help demonstrate why motel firms find differentiation a profitable product choice strategy section vi provides some concluding remarks

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

on entry exit and coordination with mixed strategies abstract a dynamic entry and exit game is studied where following dixit and shapiro 1986 the economics of strategic planning lexington books pp 63 79 firms play symmetric mixed strategies coordination among entrants improves and creates a tendency for the value of incumbency to increase as the number of incumbent firms increases up to the point of excess capacity this feature implies that when considering mixed strategies the relevant payoffs are not monotonic as the probability of entry increases expected profit for a given firm conditional on entry increases over some initial range it is shown that the payoffs have an interesting dynamic structure which allows the complete characterization of the equilibrium

does television entry decrease the number of movie theaters this paper empirically examines the impact of competition in the television tv industry on the number of movie theaters their attendance and their box office revenues studies of firm entry usually focus on the impact of regulation on economic outcomes within an industry thereby neglecting its impact on neighboring industries using changes in regulation in the spanish local tv station industry we estimate the impact of tv entry on the movie theater industry between 1993 and 2005 our findings show that local tv entry decreased the number of theaters and screens in a province as well as movie attendance and box office revenues jel l11 l43 l82

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

computable markov perfect industry dynamics we provide a general model of dynamic competition in an oligopolistic industry with investment entry andexit toensurethatthereexistsacomputationallytractablemarkov perfectequilibrium 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 exit strategies in contrast the existence of an equilibrium in the ericson and pakes model of industry dynamics requires admissibility of mixed entry exit strategies contrary to the assertion in their article that existing algorithms cannot cope with in addition we provide a condition on the model s primitives that ensures that the equilibrium is in pure investment strategies building on this basic existence result we first show that a symmetric equilibrium exists under appropriate assumptions on the model s primitives second we show that as the distribution of the random scrap values setup costs becomes degenerate equilibria in cutoff entry exit strategies converge to equilibria in mixed entry exit strategies of the game of complete information

the home bias is here to stay over the last 15 years dramatically decreasing foreign investment costs have not reduced the home bias we show that the home bias induced by a given cost is proportional to the factor 1 where is the average correlation between markets this factor is very sensitive to the correlation especially when the correlation is high empirically correlations have been steadily increasing from 0 4 in the 90 s to about 0 9 today thus the decreasing extra costs are increasingly magnified explaining the persistence of the home bias and predicting its continuation

price promotions limiting competitive encroachment in this paper we explore equilibrium pricing strategies in an infinite horizon repeated game for an oligopoly we model the interactions between three firms in a market of switchers and loyals our analysis shows that if there are sufficiently large number of switchers in the market the demand parameter is within an acceptable range and the firms have a sufficiently low discount rate alternating promotions between national firms can be an outcome of a perfect nash equilibrium between competing firms this equilibrium results in an implicit collusion between national firms and therefore suggests that price promotions can be interpreted as a long run strategy pursued by national firms to defend their market shares from possible encroachments of a third firm in this way we attempt to provide an explanation for the patterns of promotion observed in some industries and in particular the beverage industry

the dynamics of race income and homeownership abstract this paper treats household decisions regarding homeownership as a dynamic process rather than a static phenomenon the analysis employs a duration model of the sequential housing choices made by families to examine the adjustment of their housing tenure over time this model of housing choice is estimated for the nine year period 1984 to 1992 utilizing the panel study of income dynamics psid particularly for lower income and minority families the analysis finds that these households achieve homeownership more slowly they are less likely to maintain this status and they are less able to move up to better units over time

free entry and social inefficiency our goal is to provide a simple yet general exposition of the conditions under which the number of entrants in a free entry equilibrium is excessive insufficient or optimal our analysis compares the number of firms that enter a market when there is free entry with the number that would be desired by a social planner who is unable to control the behavior of firms once they are in the market that is we consider the second best problem of choosing the welfare maximizing number of firms while we take as given their noncompetitive behavior after entry we demonstrate that the crucial conditions for establishing the presence of an entry bias can be stated quite simply in terms of the outcome of the postentry game played by entrants in contrast to previous work we do not need to model this postentry game explicitly

a century of global equity market correlations in this paper we use a unique long run dataset of regulatory constraints on capital account openness to explain stock market correlations since stock returns themselves are highly volatile any examination of what drives correlations needs to focus on long runs of data this is particularly true since some of the short term changes in co movements appear to reverse themselves delroy hunter 2005 we argue that changes in the co movement of indices have not been random rather they are mainly driven by greater freedom to move funds from one country to another in related work geert bekaert and campbell harvey 2000 show that equity correlations increase after liberalization of capital markets using a number of case studies from emerging countries we examine this pattern systematically for the last century and find it to be most pronounced in the recent past we compare the importance of capital account openness with one main alternative explanation the growing synchronization of economic fundamentals we conclude that greater openness has been the single most important cause of growing correlations during the last quarter of a century though increasingly correlated economic fundamentals also matter in the conclusion we offer some thoughts on why the effects of greater openness appear to be so much stronger today than they were during the last era of globalization before 1914 this abstract was borrowed from another version of this item

mortgage lending in boston interpreting hmda data the home mortgage disclosure act was enacted to monitor minority and low income access to the mortgage market the data collected for this purpose show that minorities are more than twice as likely to be denied a mortgage as whites yet variables correlated with both race and creditworthiness were omitted from these data making any conclusion about race s role in mortgage lending impossible the federal reserve bank of boston collected additional variables important to the mortgage lending decision and found that race continued to play an important though significantly diminished role in the decision to grant a mortgage copyright 1996 by american economic association

a dynamic model of entry and exit in a growing industry the potential demand in a new industry evolves over time demand is initially low but advertising by the industry s early entrants can speed up demand growth however there is intrinsic uncertainty of the demand level in each period and uncertainty of the demand evolution path which can be affected by the underlying economic environment we construct a dynamic model that features the stochastically and endogenously expanding demand of a new industry and we investigate the optimal entry and exit behavior of firms as the industry evolves we find that firms incentive to enter early depends critically on the cost that early entrants have to pay in developing the market when the cost is high and the benefit spills over to potential entrants firms have an incentive to wait and the probability of entry can increase with the number of incumbents under certain circumstances firms entry strategy is also influenced by the transition of economic states firms are more likely to enter under a state that shows the prospect of demand taking off soon we also find that in the early stage of an industry higher demand uncertainty can induce faster entry

risk aversion and expected utility theory a calibration theorem within the expected utility framework the only explanation for risk aversion is that the utility function for wealth is concave a person has lower marginal utility for additional wealth when she is wealthy than when she is poor this paper provides a theorem showing that expected utility theory is an utterly implausible explanation for appreciable risk aversion over modest stakes within expected utility theory for any concave utility function even very little risk aversion over modest stakes implies an absurd degree of risk aversion over large stakes illustrative calibrations are provided

the bright side of having an enemy conventional wisdom suggests that more intense competition will lower firms profits the authors show that this may not hold in a channel setting with exclusive retailers they find that a manufac

home bias in open economy financial macroeconomics standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of financial globalization investors still hold a disproportionate share of local equities in their portfolio the equity home bias french and poterba 1991 we review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two country general equilibrium models we refer to this literature as open economy financial macroeconomics we focus on three broad classes of explanations i hedging motives in frictionless financial markets real exchange rate and non tradable income risk ii asset trade costs in international financial markets such as transaction costs differences in tax treatments between national and foreign assets iii informational frictions and behavioural biases these recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross border asset holdings across different types of assets equities bonds and bank lending we also present some new micro data on institutional holdings of equity at the fund level these data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment

what is the opportunity cost of mean variance investment strategies an analytical framework is set up to evaluate the foregone opportunity cost of mean variance investment strategies a parametric structure of the joint distribution of security returns for which mean variance investment strategy is suboptimal is specified for all constant absolute risk aversion investors the optimal strategy its corresponding mean variance alternative and the foregone opportunity cost of mean variance investment strategy are analytically derived and operationalized empirically when the investor s opportunity set includes the riskless asset the premium to replace the mean variance investment strategy by its optimal one does not exceed 0 05 cents on an invested dollar regardless of the investor s risk aversion when the riskless asset is denied the opportunity costs of mean variance investment strategies increase with the degree of risk aversion

the dynamic spillovers of entry an application to the generic drug industry this paper examines whether experience from entry in one market can potentially enhance profitability at a future market opportunity for a related product we formulate and estimate a dynamic game of entry in which forward looking firms make decisions not just based on present benefits of past entry but also anticipating potential future benefits of current entry dynamic spillovers of entry are incorporated through a firm specific unobservable to the researcher cost that depends on past entry decisions the unobserved costs may also be serially persistent thus the model allows for firm specific unobserved heterogeneity that evolves based on firm actions the challenge of estimating a dynamic game with serially correlated unobserved state variables subject to endogenous feedback is overcome by embedding a particle filter based technique in a nested fixed point algorithm using an application to a stylized model of entry in the generic pharmaceutical industry we underscore the motivation for the model specification and the methodology developed our estimates imply positive spillover effects of entry moreover these spillovers suggest heterogeneity not just across firms but also within firms over time based on their history of entry decisions our results illustrate that entry may potentially provide firms with additional strategic advantage in later markets and that entry spillovers may be an important factor to consider in the equilibrium evolution of the generic drug industry the web appendix is available at https doi org 10 1287 mnsc 2016 2648 this paper was accepted by j miguel villas boas marketing

the capital asset pricing model theory and empiricism in a recent breakthrough article richard roll i977 has shown that the value of the huge amount of empirical research which has attempted to verify the sharpe lintner capital asset pricing model capm is open to question briefly roll claims that if all the empirical investigators were to take a meanvariance efficient portfolio as the market portfolio they would get in the sample a perfect linear relationship between average security returns and betas in what is commonly known as the second pass cross section regression this perfect linear relationship is tautological it neither proves nor disproves the capm theory it is a technical result obtainable by straightforward algebra without making any assumption regarding the investors preference it is interesting to mention that in another paper published in 1977 stephen ross makes the same argument with regards to the capm and the efficiency of the market portfolio in his words the efficiency of the market portfolio and the capm are equivalent see ross i 977 p 178 the purpose of this paper is to show that empirical evidence and the investigation of investor behaviour lends support to a rejection of the capm theory in its presentform a revised formulation of the capm developed by levy i 978 provides a more suitable theoretical model in the reformulated capm the systematic risk beta plays in most cases only a negligible role in measuring the security s risk in section i we sketch a different prooof of what we consider to be roll s basic claim this proof contributes no additional theoretical results beyond what is given by roll i977 appendix corollary 6 but it is simple very short and uses no matrix algebra in section ii we derive a number of sample efficient sets and demonstrate that all efficient portfolios include short positions such results can be interpreted in one of the following alternative ways a sample variations cause this result but the capm holds and no such results would be obtained if we employed ex ante rather than ex post parameters b the empirical results are not entirely attributed to sample variations and they indeed contradict the capm in its present form since the motives for taking a short position can be explained by strong positive correlations between rates of return of various stocks e g general motors and ford we believe that this co movement of prices prevails ex post as well as

long term global market correlations the correlation structure of the world equity markets varied considerably over the past 150 years and was high during periods of economic integration we decompose diversification benefits into two parts one component due to variation in the average correlation across markets and a another component due to the variation in the investment opportunity set from this we infer that periods of globalization have both benefits and drawbacks for international investors globalization expands the opportunity set but as a result the benefits from diversification rely increasingly on investment in emerging markets

entry exit and imperfect competition in the long run an infinite horizon stochastic model of entry and exit with sunk costs and imperfect competition is constructed simple examples provide insights into 1 the relationship between sunk costs and industry concentration 2 entry when current profits are negative and 3 the relationship between entry and the length of the product cycle a subgame perfect nash equilibrium for the general dynamic stochastic game is shown to exist as a limit of finite horizon equilibria this equilibrium has a relatively simple structure characterized by two numbers per finite history under very general conditions it tends to exhibit excessive entry and insufficient exit relative to a social optimum

the sound of silence observational learning in the u s kidney market mere observation of others choices can be informative about product quality this paper develops an individual level dynamic model of observational learning and applies it to a novel data set from the u s kidney market where transplant candidates on a waiting list sequentially decide whether to accept a kidney offer we find strong evidence of observational learning patients draw negative quality inferences from earlier refusals in the queue thus becoming more inclined towards refusal themselves this self reinforcing chain of inferences leads to poor kidney utilization despite the continual shortage in kidney supply counterfactual policy simulations show that patients would have made more efficient use of kidneys had the concerns behind earlier refusals been shared this study yields a set of marketing implications in particular we show that observational learning and information sharing shape consumer choices in markedly different ways optimal marketing strategies should take into account how consumers learn from others

homeownership in the 1980s and 1990s aggregate trends and racial gaps abstract housing policy under the clinton and bush administrations has sought to boost homeownership while also narrowing racial gaps in owner occupancy rates against that backdrop homeownership rose sharply in the 1990s but white minority gaps remain in excess of 25 percentage points we analyze these patterns using data from the 1983 to 2001 survey of consumer finances results indicate that household characteristics explain most of the increase in homeownership and roughly two thirds of the white minority homeownership gap credit barriers account for no more than 5 percentage points of the remaining gap this suggests that policy makers will need to look beyond innovations in mortgage finance if their goal is to further expand homeownership

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

foundations of portfolio theory prize lecture to the memory of alfred nobel december 7 1990 this abstract was borrowed from another version of this item

an empirical model of firm entry with endogenous product type choices i describe a model of entry with endogenous product type choices these choices are formalized as the outcomes of a game of incomplete information in which rivals differentiated products have nonuniform competitive effects on profits i estimate the model for location choices in the video retail industry using a nested fixed point algorithm solution the results imply significant returns to product differentiation simulations illustrate the tradeoff between demand and intensified competition and the extent to which markets with more scope for differentiation support greater entry

dynamic optimal pricing and possibly advertising in the face of various kinds of potential entrants abstract several nonlinear stochastic models are developed for a dynamic profit maximizing firm with respect to its price and possibly advertising decisions under threat of entry the optimal price advertising policies for these models are characterized by the use of the maximum principle while the optimal policy will depend on the assumed functional forms it is shown that under certain plausible assumptions the optimal policy is to increase profit by charging a higher price and decrease the resulting threat of entry by a higher level of advertising

redlining in boston do mortgage lenders discriminate against neighborhoods historically lenders have been accused of redlining minority neighborhoods as well as refusing to lend to minority applicants considerable bank regulation is designed to prevent both actions however the strong correlation between race and neighborhood makes it difficult to distinguish the impact of geographic discrimination from the effects of racial discrimination previous studies have failed to untangle these two influences in part because of severe omitted variable bias the data set in this paper allows the distinct effects of race and geography to be identified and it shows that the evidence for redlining is weak

strategic entry before demand takes off in developing industries firms have to decide whether and when to enter the market depending on the state of demand existing firms in the industry and the firm s capabilities this paper investigates a model of increasing demand in which firms decide when to enter the market anticipating the strategic behavior of other potential entrants and the effects of entry on future potential entrants this paper shows that the ability of early entry to deter future competitors entry leads firms to enter the market at a rate faster than demand is expanding if there is the potential for many firms to enter the market firms may be less likely to enter because of future competitor entry to correct any market opportunities if firms enter the market depending on their fixed capabilities rather than depending on the firm s circumstances at each moment in time firms end up entering the market at a faster rate in the early periods

the evolution of new industries and the determinants of market structure several empirical regularities concerning firm growth rates and industry firm size distributions have been developed by studying primarily mature industries the primary purpose of this article is to bring together and extend empirical regularities on the evolution of new industries and to use these regularities to gain further insight into the forces governing industry evolution to explain these regularities a model is constructed which emphasizes how factors governing the early evolution of industries may shape their market structure at maturity it stresses how chance events and exogenous factors that influence the number of potential entrants to the industry the growth rate of incumbents and the ease of imitation of industry leaders will influence the ultimate number and size distribution of firms in the industry

the transition to home ownership and the black white wealth gap this paper analyzes differences in the likelihood that black and white families become homeowners by following a sample of black and white renters over time we are able to separately study racial differences in the likelihood of applying for a mortgage and in the likelihood that a mortgage application is accepted although its effect on the race gap in housing transitions is small we find strong evidence that black applicants are almost twice as likely as comparable white households to be rejected even when credit history proxies and measures of household wealth are accounted for we show that the housing transition gap exists primarily because blacks are less likely to apply for mortgages in the first place the analysis suggests that differences in income family structure and in the ability and willingness of parents to provide down payment assistance are the primary reasons for this applications gap we speculate that the portion of the gap that remains unexplained after controlling for income d

auctions with heterogeneous entry costs it is well known that if bidders have independent private values and homogeneous entry costs a rst or second price auction with a reserve price equal to the seller s value maximizes social surplus and seller revenue and leaves bidders with no surplus further in mixed strategy entry equilibria social surplus and seller revenue decrease with the number of bidders we show that when entry costs are heterogeneous and private information the revenue maximizing reserve price is above the seller s value a positive inspection fee and a reserve price equal to the seller s value generates even more revenue and in either case bidders capture informational rents further seller revenue and social surplus may either increase or decrease with the number of bidders nevertheless seller revenue is asymptotically the same whether entry costs are homogeneous or heterogeneous our results are framed in terms of screening values rather than reserve prices and apply to any standard auction

competition and subsidies in the deregulated us local telephone industry the 1996 telecommunications act opened the monopolistic us local telephone industry to new entrants however substantial entry costs have prevented some markets from becoming competitive we study various subsidy policies designed to encourage entry we estimate a dynamic entry game using data on potential and actual entrants allowing for heterogeneous option values of waiting we find that subsidies to smaller markets are more cost effective in reducing monopoly markets but subsidies to only lower cost firms are less cost effective than a nondiscriminatory policy subsidies in only early periods reduce the option value of waiting and accelerate the arrival of competition

racial gaps in the transition to first time homeownership the role of residential location abstract evidence suggests that african americans wait longer to transition into first time homeownership than white households with similar endowments this paper relies on data from the panel study of income dynamics psid to examine the contribution of residential location toward the black white gap in first time homeownership transitions for a sample of young renters who first left their parents home during the period 1978 through 1987 i estimate continuous time duration models that explain racial gaps in rental tenure durations prior to first time homeownership as a function of individual household and location specific covariates i find that while several residential location characteristics particularly those associated with the supply of affordable owner occupied housing impinge upon racial gaps in first time homeownership transitions most of the racial gap in homeownership transitions would be eliminated if blacks and whites had similar individual and household characteristics

black white differences in wealth and asset composition using data from the 1976 and 1978 national longitudinal surveys of young men and young women this study examines racial differences in the magnitude and composition of wealth and the reasons for them on average young black families hold 18 percent of the wealth of young white families and hold their wealth in proportionately different forms even after controlling for racial differences in income and other demographic factors as much as three quarters of the wealth gap remains unexplained we speculate on the causes for this concluding that racial differences in intergenerational transfers and to a lesser extent barriers to the accumulation of business and home equity most likely play a role

differentiation and competition in hmo markets this paper examines how differentiation among health maintenance organizations hmos affects local market competition most markets for hmos appear sufficiently unconcentrated however differences among hmos may make competition less intense than the number of competitors would suggest to investigate this possibility we distinguish hmos that serve only local markets from those that operate regional or national networks we analyze how hmos of one type affect the profitability of the other using an equilibrium model of entry and product choice while the two types of hmos have strong competitive effects within segments the competitive effect of differentiated firms is negligible

wealth human capital and family across racial ethnic groups integrating models of wealth and locational attainment this is a us investigation of the relationship between individuals neighbourhood characteristics and their familial and socioeconomic resources with special emphasis on wealth spatial assimilation theorists propose that racial ethnic differences in where people live can be explained by the demographic economic and familial characteristics of individuals while place stratification theorists argue that group differences in neighbourhood characteristics are not fully explained by personal resources there is evidence for the persisting effects of race ethnicity on locational attainment but support is also found for wealth influences on locational attainment in addition there is evidence of an interaction effect between race and wealth in predicting neighbourhood racial composition and neighbourhood ses but the nature of the interaction varies by group and outcome

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

to innovate or imitate entry strategy and the role of market research abstract a firm planning market entry can attempt to develop a product that is either similar to the incumbent s existing offering imitation or entirely novel innovation the authors establish that when the incumbent is more aggressive in research and development r d this negatively affects the entrant s marginal return on r d thus if greater profits produce a strong weak desire for the incumbent to increase its r d level the entrant will respond by sharply decreasing increasing its r d level as a result the incumbent s likelihood of retaining the lead position will exhibit an inverse u shaped pattern as a function of monopoly and duopoly profits the authors then examine the impact of uncertainty about the rewards from new products and allow firms to conduct market research to resolve the uncertainty they characterize the conditions for the entrant s innovation versus imitation decision to reveal information about future rewards to the incumbent when duopoly profits are uncertain and ca

country size currency unions and international asset returns differences in real interest rates across developed economies are puzzlingly large and persistent i propose a simple explanation bonds issued in the currencies of larger economies are expensive because they insure against shocks that affect a larger fraction of the world economy i show that indeed differences in the size of economies explain a large fraction of the cross sectional variation in currency returns the data also support additional implications of the model the introduction of a currency union lowers interest rates in participating countries and stocks in the nontraded sector of larger economies pay lower expected returns

entry and exit over the industry life cycle this article presents a theoretical model of the rivalry between two firms in a market that undergoes a life cycle of growth and eventual decline firms in this market have the option of exit and reentry in the equilibrium for the growth phase high entry costs can act like high exit costs thereby conveying a commitment advantage for some parameter configurations this advantage is sufficient to enable a high costfirm to preempt its lower cost rival during the decline phase the smaller duopolist is able to outlast its rival provided that the smaller firm s reentry costs are positive

the role of differentiation strategy in local telecommunication entry and market evolution 1999 2002 we examine the role of differentiation among competitive local exchange carriers clecs in nearly 1 200 u s cities in 1999 and 2002 before and after a valuation crash affecting communications firms we test and reject the null hypothesis of homogeneous competitors we also find strong evidence that differentiated clecs account for both potential market demand and the business strategies of competitors when making their entry decisions finally product heterogeneity in markets in 1999 helps predict how the structure of markets evolved through 2002 we conclude that the policy debate for local telecommunications regulation should account for differentiated behavior

firm expansion size spillovers and market dominance in retail chain dynamics we develop and estimate a dynamic game of strategic firm expansion and contraction decisions to study the role of firm size in future profitability and market dominance modeling firm size is important because retail chain dynamics are more richly driven by expansion and contraction than de novo entry or permanent exit additionally anticipated size spillovers may influence the strategies of forward looking firms making it difficult to analyze the effects of size without explicitly accounting for these in the expectations and hence decisions of firms expansion may also be profitable for some firms while detrimental for others thus we explicitly model and allow for heterogeneity in the dynamic link between firm size and profits as well as potential for persistent brand effects through firm specific unobservable factors as a methodological contribution we surmount the hurdle of estimating the model by extending a two step procedure that circumvents solving the game the first stage combines semipar