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Grupo de Estudos Monetários e Financeiros

Estudo do GEMF n.º 07/2016


New-Issues Markets as behavioral barriers to entry: an agent-based model of choices and market structure

Ulisses L. Morais 1, Adelino M. G. Fortunato 2 & Ernesto J. F. Costa 3
1 Faculty of Economics of the University of Coimbra, Portugal
2 Center for Business and Economics Research of the University of Coimbra, Portugal
3 Department of Informatics Engineering of the University of Coimbra, Portugal


The possibility that the existence of New-Issues Markets (NIM) could promote, through a behavioral response of potential entrants, a greater market concentration on economic sectors is the object of the present work. We analyze in what conditions do entrepreneurs choose to abandon their plans of entering some industry in order to invest in securities of companies in that same industry. To engage this matter an agent-based model, named Utility Load, was developed and simulated in NetLogo platform, where the entrepreneurs rely on a hybrid heuristic among Prospect Theory and Random Walk Model of perceptual decision-making to choose between starting a firm, assembling a portfolio or doing neither by postponing their decision. We arrive at the conclusion that a lengthy investment horizon or high bonds’ coupon, by offering greater prospective gains, attracts the vast majority of potential entrants to the NIM, which has a nefarious effect on the sector’s structure by increasing its concentration – measured by the Herfindahl-Hirschman Index. Moreover, the model indicates that a more bounded rationale is welfare increasing whilst allowing firms to continuously issue new debt to the public diminishes welfare. The results narrow the scope of reality to be emulated in experimental works and open the door for future empirical researches on this matter by making them more attainable.

Keywords: Agent-Based Model, Barriers to Entry, Entrepreneurship, New-Issues Markets, Market Concentration.

JEL classification: C63 ⦁ D81 ⦁ L26

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