The Klapper Model

The Klapper Model is a framework used in economics to analyze how firms decide whether to enter or exit a market. It considers both the expected profits from starting a business and the risks involved, including potential losses if the venture fails. The model emphasizes that firms will only enter if they believe the expected profits outweigh the risks and costs, and they exit when operations become unprofitable. It helps explain market dynamics by showing how uncertainties and profit expectations influence firm behavior over time.