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Lower Bounds of Concentration in a Small Open Economy

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  • Pekka Ilmakunnas

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Abstract

We examine how Sutton’s “bounds” approach works in a small country where industries have relatively high export and import intensities. Import competition is used as an indicator for the degree of competition in the low sunk cost industries. The bounds are estimated as stochastic frontiers, where observable industry characteristics, export intensity and entry barriers, are allowed to affect the mean and variance of the deviations from the frontier. In accordance with the theory, high R&D intensity industries have a lower bound for concentration, which is higher than that for low sunk cost intensity industries. For high advertising industries the theory does not hold as well. High import competition leads to a higher bound in the low sunk cost industries.

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File URL: http://hdl.handle.net/10.1007/s11151-008-9162-3
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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 32 (2008)
Issue (Month): 1 (February)
Pages: 19-33

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Handle: RePEc:kap:revind:v:32:y:2008:i:1:p:19-33

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Web page: http://www.springerlink.com/link.asp?id=100336

Related research

Keywords: Concentration; R&D; Stochastic frontiers; Sunk costs; L11; L13; L60;

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  1. Sutton, John, 2007. "Market Structure: Theory and Evidence," Handbook of Industrial Organization, Elsevier.
  2. Wahlroos, B & Backstrom, M, 1982. "R & D Intensity with Endogenous Concentration: Evidence for Finland," Empirical Economics, Springer, vol. 7(1-2), pages 13-22.
  3. Symeonidis, George, 1999. "Price Competition and Market Structure: The Impact of Cartel Policy on Concentration in the UK," CEPR Discussion Papers 2308, C.E.P.R. Discussion Papers.
  4. Wang, Hung-Jen, 2002. "Heteroscedasticity and non-monotonic efficiency effects of a stochastic frontier model," MPRA Paper 31076, University Library of Munich, Germany.
  5. Catherine Matraves & Laura Rondi, 2007. "Product Differentiation, Industry Concentration and Market Share Turbulence," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 14(1), pages 37-57.
  6. Duetsch, Larry L, 1984. "Entry and the Extent of Multiplant Operations," Journal of Industrial Economics, Wiley Blackwell, vol. 32(4), pages 477-87, June.
  7. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. Lyons, Bruce & Matraves, Catherine & Moffatt, Peter, 2001. "Industrial Concentration and Market Integration in the European Union," Economica, London School of Economics and Political Science, vol. 68(269), pages 1-26, February.
  9. Marín Uribe, Pedro Luis & Siotis, Georges, 2002. "Innovation and Market Structure: An Empirical Evaluation of the 'Bounds Approach' in the Chemical Industry," CEPR Discussion Papers 3162, C.E.P.R. Discussion Papers.
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