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Market Structure and Entry: Where's the Beef?

Author

Listed:
  • Otto Toivanen

    (HECER, University of Helsinki)

  • Michael Waterson

    (University of Warwick)

Abstract

We study the effects of market structure on entry using data from the U.K. fast food (counter-service burger) industry over the years 1991--1995, for which the market can be characterized as a duopoly. We use both reduced-form estimations and a structural model, controlling for market-specific time-invariant unobservables. For both firms, we find that market structure matters greatly. Specifically, rival presence increases the probability of entry by increasing expected market size, whereas variable profits per customer are increasing in the number of own outlets. Our results suggest the presence of product differentiation, firm learning, and market power.

Suggested Citation

  • Otto Toivanen & Michael Waterson, 2005. "Market Structure and Entry: Where's the Beef?," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 680-699, Autumn.
    • Handle: RePEc:rje:randje:v:36:y:2005:3:p:680-699
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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