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The Dynamics of Market Structure and Market Size in Two Health Service Industries

In: Producer Dynamics: New Evidence from Micro Data

  • Timothy Dunne
  • Shawn D. Klimek
  • Mark J. Roberts
  • Daniel Yi Xu

The relationship between the size of a market and the competitiveness of the market has been of long-standing interest to IO economists. Empirical studies have used the relationship between the size of the geographic market and both the number of firms in the market and the average sales of the firms to draw inferences about the degree of competition in the market. This paper extends this framework to incorporate the analysis of entry and exit flows. A key implication of recent entry and exit models is that current market structure will likely depend upon history of past participation. The paper explores these issues empirically by examining producer dynamics for two health service industries, dentistry and chiropractic services. We find that the number of potential entrants and past number of incumbent firms are correlated with current market structure. The empirical results also show that as market size increases the number of firms rises less than proportionately, firm size increases, and average productivity increases. However, the magnitude of the correlations are sensitive to the inclusion of the market history variables.

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This chapter was published in:
  • Timothy Dunne & J. Bradford Jensen & Mark J. Roberts, 2009. "Producer Dynamics: New Evidence from Micro Data," NBER Books, National Bureau of Economic Research, Inc, number dunn05-1, October.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 0490.
    Handle: RePEc:nbr:nberch:0490
    Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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    1. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," NBER Working Papers 10501, National Bureau of Economic Research, Inc.
    2. Marcus Asplund & Volker Nocke, 2006. "Firm Turnover in Imperfectly Competitive Markets -super-1," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 295-327.
    3. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
    4. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, 05.
    5. Jeffrey R. Campbell & Hugo Hopenhayn, 2003. "Market size matters," Working Paper Series WP-03-12, Federal Reserve Bank of Chicago.
    6. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation of Dynamic Discrete Games," Industrial Organization 0406006, EconWPA.
    7. 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.
    8. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
    9. Berry, Steven & Waldfogel, Joel, 2005. "Product Quality and Market Size," Working Papers 1, Yale University, Department of Economics.
    10. Berry, Steven & Reiss, Peter, 2007. "Empirical Models of Entry and Market Structure," Handbook of Industrial Organization, Elsevier.
    11. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
    12. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers 02-17, Center for Economic Studies, U.S. Census Bureau.
    13. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
    14. Allan Collard-Wexler, 2006. "Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry," Working Papers 06-08, Center for Economic Studies, U.S. Census Bureau.
    15. Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 833-882.
    16. 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.
    17. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers.
    18. Timothy F. BRESNAHAN & Peter C.REISS, 1994. "Measuring the Importance of Sunk Costs," Annales d'Economie et de Statistique, ENSAE, issue 34, pages 181-217.
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