EXPERIENCE ADVANTAGES AND ENTRY DYNAMICS

We consider an extension of Dixit and Shapiro’s model of uncoordinated entry dynamics to the case when there are experience advantages: each firm’s payoff from being in the market increases with past experience, measured by the number of periods it has previously been active. We select an equilibrium which satisfies a number of reasonable properties and provide the exact bounds for the long-run number of active firms, which is a random variable. These bounds correspond to generalized no entry-no exit conditions. Journal of Economic Literature Classification Number: L10. © 1993 Academic Press, Inc.