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!