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Firm Entry, Excess Capacity and Endogenous Productivity

Savagar, Anthony, Dixon, Huw (2020) Firm Entry, Excess Capacity and Endogenous Productivity. European Economic Review, 121 . Article Number 103339. ISSN 0014-2921. (doi:10.1016/j.euroecorev.2019.103339) (KAR id:78308)


We show that sluggish firm entry causes productivity to vary endogenously in response to technology shocks. The endogenous productivity effect is caused by incumbent firms utilizing excess capacity as entry adjusts. We develop a nonparametric model of endogenous sunk costs and monopolistic competition to show that imperfect competition and dynamic entry are necessary and jointly sufficient conditions for endogenous productivity fluctuations. Quantitatively we show the endogenous productivity effect is as large as that from a traditional `capital utilization' erect.

Item Type: Article
DOI/Identification number: 10.1016/j.euroecorev.2019.103339
Uncontrolled keywords: Dynamic entry, Endogenous productivity, Continuous time, Imperfect competition
Divisions: Divisions > Division of Human and Social Sciences > School of Economics
Depositing User: Anthony Savagar
Date Deposited: 06 Nov 2019 16:36 UTC
Last Modified: 09 Dec 2022 01:09 UTC
Resource URI: (The current URI for this page, for reference purposes)

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