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The Slow Growth of New Plants: Learning about Demand?

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  • Lucia Foster
  • John C. Haltiwanger
  • Chad Syverson

Abstract

It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants' idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants' past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.

Suggested Citation

  • Lucia Foster & John C. Haltiwanger & Chad Syverson, 2012. "The Slow Growth of New Plants: Learning about Demand?," NBER Working Papers 17853, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17853
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    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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