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The Number of Firms and Production Capacity in Relation to Market Size

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  • Asplund, Marcus
  • Sandin, Rickard

Abstract

Many oligopoly theories predict a positive correlation between market size and the equilibrium number of firms and some also imply that competition is more intense in larger markets. The authors test these predictions on a sample of driving schools in 250 Swedish regional markets by estimating the relation between the number of firms, production capacity, and market size. The number of firms increases less than proportionally with market size. Market size per capacity unit is smaller in large markets. Since firms produce a fairly homogenous good, the authors argue that this is evidence that profits per capita is decreasing in market size. Copyright 1999 by Blackwell Publishing Ltd

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  • 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.
  • Handle: RePEc:bla:jindec:v:47:y:1999:i:1:p:69-85
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    Cited by:

    1. Walter Elberfeld & Georg Götz, 2002. "Market Size, Technology Choice, and Market Structure," German Economic Review, Verein für Socialpolitik, vol. 3(1), pages 25-41, February.
    2. Martin Lábaj & Karol Morvay & Peter Silaniè & Christoph Weiss, 2014. "Market Structure in Transition: Entry and Competition in Slovakia," Department of Economic Policy Working Paper Series 005, Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava.
    3. Martin Carree & Marcus Dejardin, 2007. "‘Entry Thresholds and Actual Entry and Exit in Local Markets’," Small Business Economics, Springer, vol. 29(1), pages 203-212, June.
    4. Catherine Schaumans & Frank Verboven, 2015. "Entry and Competition in Differentiated Products Markets," The Review of Economics and Statistics, MIT Press, pages 195-209.
    5. Raul V. Fabella, 2015. "N-Poly Viability and Conglopolistic Competition in Small Emerging Market," UP School of Economics Discussion Papers 201505, University of the Philippines School of Economics.
    6. Greene, William, 2007. "Functional Form and Heterogeneity in Models for Count Data," Foundations and Trends(R) in Econometrics, now publishers, vol. 1(2), pages 113-218, August.
    7. Kattuman, P. & Roberts, B.M., 2000. "Strategy Choices of Firms and Market Concentration'," Cambridge Working Papers in Economics 0018, Faculty of Economics, University of Cambridge.
    8. William Greene, 2009. "Models for count data with endogenous participation," Empirical Economics, Springer, vol. 36(1), pages 133-173, February.
    9. Marcus Asplund & Volker Nocke, 2003. "Firm Turnover in Imperfectly Competitive Markets," PIER Working Paper Archive 03-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    10. Michelle A. Danis, 2003. "A Discrete Choice Approach to Measuring Competition in Equity Option Markets," Staff Working Papers 03-05, Federal Housing Finance Agency.
    11. Kathleen Cleeren & Frank Verboven & Marnik G. Dekimpe & Katrijn Gielens, 2010. "Intra- and Interformat Competition Among Discounters and Supermarkets," Marketing Science, INFORMS, vol. 29(3), pages 456-473, 05-06.
    12. Martin Lábaj & Peter Silaniè & Christoph Weiss, 2013. "Entry and Competition in a Transition Economy: The Case of Slovakia," Department of Economic Policy Working Paper Series 003, Department of Economic Policy, Faculty of National Economy, University of Economics in Bratislava.
    13. Asplund, Marcus, 1998. "On the size distributions of firms and markets," SSE/EFI Working Paper Series in Economics and Finance 288, Stockholm School of Economics.
    14. Mohammad Jamali & Hatra Voghouei & Nor Md Nor, 2014. "Information technology and survival of firms," Netnomics, Springer, vol. 15(2), pages 107-119, September.
    15. Cleeren, K. & Dekimpe, M.G. & Verboven, F., 2005. "Intra- and Inter-Channel Competition in Local-Service Sectors," ERIM Report Series Research in Management ERS-2005-018-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    16. Greene, William, 2008. "Functional forms for the negative binomial model for count data," Economics Letters, Elsevier, vol. 99(3), pages 585-590, June.
    17. William Greene, 2007. "Correlation in Bivariate Poisson Regression Model," Working Papers 07-14, New York University, Leonard N. Stern School of Business, Department of Economics.
    18. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2009. "The Dynamics of Market Structure and Market Size in Two Health Service Industries," NBER Chapters,in: Producer Dynamics: New Evidence from Micro Data, pages 303-327 National Bureau of Economic Research, Inc.
    19. Noailly, Joëlle & Nahuis, Richard, 2010. "Entry and competition in the Dutch notary profession," International Review of Law and Economics, Elsevier, vol. 30(2), pages 178-185, June.
    20. Neumann, Manfred & Weigand, Jurgen & Gross, Alexandra & Munter, Markus Thomas, 2001. "Market size, fixed costs and horizontal concentration," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 823-840, April.
    21. Bonanno, Alessandro & Chenarides, Lauren & Goetz, Stephan J., 2012. "Limited Food Access as an Equilibrium Outcome: An Empirical Analysis," 2012 AAEA/EAAE Food Environment Symposium, May 30-31, Boston, MA 123196, Agricultural and Applied Economics Association.

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