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Estimating the number of firms and capacity in small markets

Author

Listed:
  • Asplund, Marcus

    (Department of Economics)

  • Sandin, Rickard

    (Department of Economics)

Abstract

Many oligopoly theories predict that there will be a positive correlation between market size and the equilibrium number of firms, and some also imply that competition is more intense in larger markets. We test these predictions with a sample of 535 driving schools in 249 markets. With an ordered Probit, a Tobit, and a Poisson model we estimate the relation between the number of firms, capacity, and market size. We find a strong positive correlation between market size and the number of firms. The results show that the per firm market size is increasing in the number of firms in the market. The market size per capacity unit is smaller in large markets. Since the industry produces a fairly homogenous good, we argue that this is evidence that competition is increasing in market size.

Suggested Citation

  • Asplund, Marcus & Sandin, Rickard, 1996. "Estimating the number of firms and capacity in small markets," SSE/EFI Working Paper Series in Economics and Finance 87, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0087
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    More about this item

    Keywords

    Industry structure; capacity; entry thresholds; count data; driving schools;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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