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The Slow Growth of New Plants: Learning about Demand?

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  • Lucia Foster
  • John Haltiwanger
  • Chad Syverson

Abstract

It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants’ idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants’ past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.

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File URL: ftp://ftp2.census.gov/ces/wp/2012/CES-WP-12-06.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 12-06.

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Length: 53 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:cen:wpaper:12-06

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Citations

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Cited by:
  1. Smeets, Valérie & Warzynski, Frédéric, 2010. "Learning by Exporting, Importing or Both? Estimating productivity with multi-product firms, pricing heterogeneity and the role of international trade," Working Papers 10-13, University of Aarhus, Aarhus School of Business, Department of Economics.
  2. Bart J. Bronnenberg & Jean-Pierre H. Dube & Matthew Gentzkow, 2010. "The Evolution of Brand Preferences: Evidence from Consumer Migration," NBER Working Papers 16267, National Bureau of Economic Research, Inc.
  3. Andrea Weber & Christine Zulehner, 2009. "Competition and Gender Prejudice: Are Discriminatory Employers Doomed to Fail?," NRN working papers 2009-26, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  4. Ivan Cherkashin & Svetlana Demidova & Hiau Looi Kee & Kala Krishna, 2010. "Firm Heterogeneity and Costly Trade: A New Estimation Strategy and Policy Experiments," NBER Working Papers 16557, National Bureau of Economic Research, Inc.
  5. Hsieh, Chang-Tai & Klenow, Peter J., 2012. "The Life Cycle of Plants in India and Mexico," Working Papers 12-20, Center for Economic Studies, U.S. Census Bureau.
  6. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  7. Francois Gourio & Leena Rudanko, 2011. "Customer Capital," NBER Working Papers 17191, National Bureau of Economic Research, Inc.
  8. Allen Tran, 2013. "Customer Driven Establishment Dynamics and Allocative Efficiency," 2013 Meeting Papers 115, Society for Economic Dynamics.

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