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OPEN VERSUS CLOSED FIRMS AND THE DYNAMICS OF INDUSTRY EVOLUTION *
Author(s) -
ARORA ASHISH,
BOKHARI FARASAT A. S.
Publication year - 2007
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2007.00321.x
Subject(s) - odds , offset (computer science) , barriers to entry , business , industrial organization , dynamics (music) , open system (computing) , economics , microeconomics , computer science , physics , logistic regression , software , machine learning , acoustics , market structure , programming language
We develop a model of industry evolution in which firms choose proprietary standards (closed firm) or adopt a common standard (open firm). A closed entrant can capture multiple profits whereas an open entrant faces lower entry barriers: The odds of closed entry (relative to open entry) decrease with price and eventually open entry becomes more likely. While initially closed firms have better survival because they can offset losses in one component with profits from another, the situation is reversed when prices fall below a threshold. These entry and exit dynamics can lead the industry away from its long run equilibrium.