Sunk Costs, Market Contestability, and the Size Distribution of Firms
This paper offers a new economic explanation for the observed inter-industry differences in the size distribution of firms. The empirical estimates--based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit United States manufacturing industries--indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum.
(This abstract was borrowed from another version of this item.)
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.:
- Zmijewski, Mark E. & Hagerman, Robert L., 1981. "An income strategy approach to the positive theory of accounting standard setting/choice," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 129-149, August.
- Vivek Ghosal, 2003.
"Impact of Uncertainty and Sunk Costs on Firm Survival and Industry Dynamics,"
CIG Working Papers
SP II 2003-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Ghosal, Vivek, 2002. "Impact of Uncertainty and Sunk Costs on Firm Survival and Industry Dynamics," Royal Economic Society Annual Conference 2002 86, Royal Economic Society.
- Blandina Oliveira & Adelino Fortunato, 2003.
"Testing Gibrat’s Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms,"
GEMF Working Papers
2003-07, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Blandina Oliveira & Adelino Fortunato, 2006. "Testing Gibrat's Law: Empirical Evidence from a Panel of Portuguese Manufacturing Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 13(1), pages 65-81.
- Martin, Stephen, 1989. "Sunk costs, financial markets, and contestability," European Economic Review, Elsevier, vol. 33(6), pages 1089-1113, July.
- Luís M. B. Cabral & Thomas W. Ross, 2008.
"Are Sunk Costs a Barrier to Entry?,"
Journal of Economics & Management Strategy,
Wiley Blackwell, vol. 17(1), pages 97-112, 03.
- Cabral, Luís M B & Ross, Thomas, 2007. "Are Sunk Costs a Barrier to Entry?," CEPR Discussion Papers 6162, C.E.P.R. Discussion Papers.
- Luís Cabral & Thomas Ross, 2007. "Are Sunk Costs a Barrier to Entry?," Working Papers 19, Portuguese Competition Authority.
- Luis M.B. Cabral & Thomas Ross, 2006. "Are Sunk Costs A Barrier To Entry?," Working Papers 06-09, New York University, Leonard N. Stern School of Business, Department of Economics.
- White, Lawrence J, 1982. "The Determinants of the Relative Importance of Small Business," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 42-49, February.
- Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2009.
"Defending Gibrat’s Law as a long-run regularity,"
Small Business Economics,
Springer, vol. 32(1), pages 31-44, January.
- Ghosal, Vivek, 2007. "Small is Beautiful but Size Matters: The Asymmetric Impact of Uncertainty and Sunk Costs on Small and Large Businesses," MPRA Paper 5461, University Library of Munich, Germany.
- Ghosal, Vivek, 1996. "Does uncertainty influence the number of firms in an industry?," Economics Letters, Elsevier, vol. 50(2), pages 229-236, February.
- Davies, Stephen W & Lyons, Bruce R, 1982. "Seller Concentration: The Technological Explanation and Demand Uncertainty," Economic Journal, Royal Economic Society, vol. 92(368), pages 903-19, December.
- Geroski, Paul A & Samiei, Hossein & Urga, Giovanni, 1997.
"Are Differences in Firm Size Transitory or Permanent?,"
CEPR Discussion Papers
1691, C.E.P.R. Discussion Papers.
- G. Urga & P. A. Geroski & S. Lazarova & C. F. Walters, 2003. "Are differences in firm size transitory or permanent?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 47-59.
- Vivek Ghosal, 2003. "Firm and Establishment Volatility: The Role of Sunk Costs, Profit Uncertainty and Technological Change," CESifo Working Paper Series 980, CESifo Group Munich.
- John E. Kwoka Jr. & Lawrence J. White, 2000.
"The New Industrial Organization and Small Business,"
00-03, New York University, Leonard N. Stern School of Business, Department of Economics.
- Kwoka, John E, Jr & White, Lawrence J, 2001. " The New Industrial Organization and Small Business," Small Business Economics, Springer, vol. 16(1), pages 21-30, February.
- Kwoka Jr., J.E. & White, L.J., 2000. "The New Industrial Organization and Small Business," New York University, Leonard N. Stern School Finance Department Working Paper Seires ec-00-03, New York University, Leonard N. Stern School of Business-.
- Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
- White, Lawrence J, 1981. "What Has Been Happening to Aggregate Concentration in the United States?," Journal of Industrial Economics, Wiley Blackwell, vol. 29(3), pages 223-30, March.
- Berry, Steven & Reiss, Peter, 2007. "Empirical Models of Entry and Market Structure," Handbook of Industrial Organization, Elsevier.
- Schmalensee, Richard., 1987.
"Inter-industry studies of structure and performance,"
1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- 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 Elsevier.
- Hagerman, Robert L & Senbet, Lemma W, 1976. "A Test of Accounting Bias and Market Structure," The Journal of Business, University of Chicago Press, vol. 49(4), pages 509-14, October.
- Jong-Rong Chen & Wen-Cheng Lu, 2003. "Panel unit root tests of firm size and its growth," Applied Economics Letters, Taylor & Francis Journals, vol. 10(6), pages 343-345.
- Del Monte, Alfredo & Papagni, Erasmo, 2003. "R&D and the growth of firms: empirical analysis of a panel of Italian firms," Research Policy, Elsevier, vol. 32(6), pages 1003-1014, June.
- Xavier Gabaix, 1999. "Zipf'S Law For Cities: An Explanation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 739-767, August.
- Kessides, Ioannis N, 1986. "Advertising, Sunk Costs, and Barriers to Entry," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 84-95, February.
When requesting a correction, please mention this item's handle: RePEc:kap:revind:v:37:y:2010:i:3:p:215-236. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.