Open versus closed firms and the dynamics of industry evolution

Ashish Arora, Farasat Bokhari

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)499-527
Number of pages29
JournalJournal of Industrial Economics
Volume55
Issue number3
DOIs
Publication statusPublished - 2007

Cite this