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Entry, exit, and the determinants of market structure

  • Dunne, Timothy

    ()

    (Federal Reserve Bank of Atlanta)

  • Klimek, Shawn D.

    ()

    (Census Bureau)

  • Roberts, Mark J.

    ()

    (Pennsylvania State University)

  • Xu, Daniel Yi

    ()

    (Duke University)

This paper estimates a dynamic, structural model of entry and exit in an oligopolistic industry and uses it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. Entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all found to be important determinants of long-run firm values, firm turnover, and market structure. Estimates for the dentist industry allow the entry cost to differ for geographic markets that were designated as Health Professional Shortage Areas and in which entry was subsidized. The estimated mean entry cost is 11 percent lower in these markets. Using simulations, we compare entry-cost versus fixed-cost subsidies and find that entry-cost subsidies are less expensive per additional firm.

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Paper provided by Federal Reserve Bank of Atlanta in its series FRB Atlanta Working Paper with number 2013-10.

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Length: 50 pages
Date of creation: 01 Oct 2013
Date of revision:
Handle: RePEc:fip:fedawp:2013-10
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