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Firm Productivity Growth and Competition


  • Mogens Dilling-Hansen

    (University of Aarhus)

  • Tor Eriksson

    (Aarhus School of Business)

  • Erik Strøjer Madsen

    (Danish Institute for Studies in Research and Research Policy)

  • Valdemar Smith

    (Institute of Economics, University of Copenhagen)


It is a commonplace to assume that competition within an industry reduces firms’ profit margins and production inefficiency and increases the effort and resources firms spend on innovations. Although theoretically there are good reasons to believe that competition will increase the productivity of the firms, there is very little empirical evidence on this issue. In this paper we study the productivity in Danish firms and the factors affecting their productivity. The study is based on a longitudinal sample of a little over 2,800 firms in the manufacturing sector. We investigate how total factor productivity at the firm level is affected by the number of competitors in the product market, the level of profit in the industry, the amount of debt service payments and the type of ownership.

Suggested Citation

  • Mogens Dilling-Hansen & Tor Eriksson & Erik Strøjer Madsen & Valdemar Smith, 1997. "Firm Productivity Growth and Competition," CIE Discussion Papers 1997-22, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  • Handle: RePEc:kud:kuieci:1997-22

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    References listed on IDEAS

    1. Dewey, Donald, 1976. "Industrial Concentration and the Rate of Profit: Some Neglected Theory," Journal of Law and Economics, University of Chicago Press, vol. 19(1), pages 67-78, April.
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    10. Lambson, Val Eugene, 1987. "Is the Concentration-Profit Correlation Partly an Artifact of Lumpy Technology?," American Economic Review, American Economic Association, vol. 77(4), pages 731-733, September.
    11. Klepper, Steven, 1996. "Entry, Exit, Growth, and Innovation over the Product Life Cycle," American Economic Review, American Economic Association, vol. 86(3), pages 562-583, June.
    12. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
    13. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
    14. Lambson, V.E., 1989. "Industry Evolution With Sunk Costs And Uncertian Market Conditions," Working papers 8904, Wisconsin Madison - Social Systems.
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    Cited by:

    1. Alexandra Groß-Schuler & Jürgen Weigand, 2001. "Sunk Costs, Managerial Incentives and Firm Productivity," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 70(2), pages 275-287.
    2. Valdemar Smith & Mogens Dilling-Hansen & Tor Eriksson & Erik Strøjer Madsen, 2004. "R&D and productivity in Danish firms: some empirical evidence," Applied Economics, Taylor & Francis Journals, vol. 36(16), pages 1797-1806.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


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