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Firm Growth and Failure in Increasingly Competitive Markets Theory and Application to Hospital Markets

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  • Lee Rivers Mobley
  • H. E. Frech

Abstract

Recent models of firm failure and growth have ignored demand factors. In this paper, we generalize these theoretical analyses to include demand factors in explaining failure and growth for heterogeneous firms in local markets facing imperfect but increasing competition. The model is then applied empirically to the hospital industry in California over the 1980s, during which time competition did intensify. We model the closure decision based on expectations of future growth, explicitly accounting for self selection and simultaneity. We find that both size and demand factors are important determinants of survival and growth

Suggested Citation

  • Lee Rivers Mobley & H. E. Frech, 1994. "Firm Growth and Failure in Increasingly Competitive Markets Theory and Application to Hospital Markets," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 1(1), pages 77-93.
  • Handle: RePEc:taf:ijecbs:v:1:y:1994:i:1:p:77-93 DOI: 10.1080/758540500
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    Citations

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    Cited by:

    1. Lynk, William J., 1995. "The creation of economic efficiencies in hospital mergers," Journal of Health Economics, Elsevier, vol. 14(5), pages 507-530, December.
    2. Capps, Cory & Dranove, David & Lindrooth, Richard C., 2010. "Hospital closure and economic efficiency," Journal of Health Economics, Elsevier, vol. 29(1), pages 87-109, January.
    3. Frech, Ted E, 1998. "Managed Care, Distance Traveled, and Hospital Market Definition," University of California at Santa Barbara, Economics Working Paper Series qt84x5q49q, Department of Economics, UC Santa Barbara.
    4. Lindrooth, Richard C. & Lo Sasso, Anthony T. & Bazzoli, Gloria J., 2003. "The effect of urban hospital closure on markets," Journal of Health Economics, Elsevier, vol. 22(5), pages 691-712, September.
    5. Lee Mobley & W. David Bradford, 1997. "Behavioural differences among hospitals: it is ownership, or location?," Applied Economics, Taylor & Francis Journals, vol. 29(9), pages 1125-1138.
    6. Rexford E. Santerre & Debra Pepper, 2000. "Survivorship in the US hospital services industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(5), pages 181-189.

    More about this item

    Keywords

    Closure; Growth; Survivor analysis; Hospitals; Scale economies; Competition; I11; L11; L31; L44; L84; O24;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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