On the size distributions of firms and markets
AbstractTwo weak restrictions on equilibrium market structures are that firms who decide to enter make sufficient profits to cover entry costs and fixed costs of production, and that no new firm could profitably enter. I examine these restrictions by the size distribution of firms in the same industry, but who compete in different geographical markets. The industry is characterised by small exogenous entry costs, comparatively large fixed costs of production, negligible efficiency differences, and primarily spatial product differentiation. The inherent symmetry of conditions results in a strong tendency towards equal sized firms within markets. Market structures with many small firms are never observed and rarely are those with a few large firms, thereby illustrating the bite of the two restrictions. Finally, I show that a skewed size distribution of firms at the industry level can be explained by an underlying skewed distribution of market sizes.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 288.
Length: 18 pages
Date of creation: 09 Dec 1998
Date of revision:
Contact details of provider:
Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
Web page: http://www.hhs.se/
More information through EDIRC
Size distribution of firms; market structure; market size; exogenous sunk costs; spatial product differentiation; driving schools;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-15 (All new papers)
- NEP-MIC-1998-12-15 (Microeconomics)
- NEP-TID-1998-12-15 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schmalensee, Richard, 1989.
"Inter-industry studies of structure and performance,"
Handbook of Industrial Organization,
in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009
- Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 531-53, October.
- Bresnahan, T.F & Reiss, P.C., 1989.
"Entry And Competition In Concentrated Markets,"
151, Stanford - Studies in Industry Economics.
- Asplund, Marcus & Sandin, Rickard, 1999.
"Competition in interrelated markets: An empirical study,"
International Journal of Industrial Organization,
Elsevier, vol. 17(3), pages 353-369, April.
- Asplund, Marcus & Sandin, Rickard, 1995. "Competition in Interrelated Markets: An Empirical Study," Working Paper Series in Economics and Finance 84, Stockholm School of Economics.
- Cabral, Luis, 1995. "Sunk Costs, Firm Size and Firm Growth," Journal of Industrial Economics, Wiley Blackwell, vol. 43(2), pages 161-72, June.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- McCloughan, Patrick, 1995. "Simulation of Concentration Development from Modified Gibrat Growth-Entry-Exit Processes," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 405-33, December.
- Asplund, Marcus & Sandin, Rickard, 1999. "The Number of Firms and Production Capacity in Relation to Market Size," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 69-85, March.
- Luigi Buzzacchi & Tommaso Valetti, 1999.
"Firm Size Distribution: Testing the "Independent Submarkets Model" in the Italian Motor Insurance Industry,"
STICERD - Economics of Industry Papers
24, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Buzzacchi, Luigi & Valletti, Tommaso M., 2006. "Firm size distribution: Testing the "independent submarkets model" in the Italian motor insurance industry," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 809-834, July.
- Buzzacchi, Luigi & Valletti, Tommaso, 2002. "Firm Size Distribution: Testing the 'Independent Submarkets Model' in the Italian Motor Insurance Industry," CEPR Discussion Papers 3444, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Helena Lundin).
If references are entirely missing, you can add them using this form.