Title: Dynamic Learning and Exit in Competitive Markets

Speaker: Hongju Liu, Assistant Professor, School of Business, University of Connecticut

Time: 1:30-3:00pm, 9th May, 2012

Location: Room 217, New Building of GSM, Peking University

Abstract

This paper presents a model of firms making exit decisions in a competitive industry. We model the process as the result of learning and selection in a dynamic game setting. Firms are uncertain about their true capability of competing in the market. Meanwhile, they are uncertain of the true types of their competitors. Sales of each time period provide a noisy signal of the capabilities of the competing firms and the firms use the demand signals to update their belief of themselves as well as their competitors in Bayesian fashion. Firms strategically decide whether to exit the industry each period given the learning results and the expectation of the competition dynamics. We estimate the model using a data set of China’s evolving microwave oven industry. We also separately evaluate the importance of self-learning, learning-of-others and competition in driving the exit decisions through simulations.

Welcome to attend!