Firm Dynamics in a Competitive Industry

The paper demonstrates that basic empirical regularities concerning the dependence of firm dynamics on age and size can be naturally explained in a refined model of a competitive industry in Dixit and Pindyck (1996). In our model, all equity financed firms make entry, expansion, and exit decisions based on the level of idiosyncratic productivity shocks. Industry aggregates are non-random. We solve for the long-run equilibrium price of output and derive the stationary distribution of active firms