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Market Size Matters

  • Jeffrey R. Campbell
  • Hugo A. Hopenhayn

This paper characterizes the effects of market size on the size distribution of establishments for thirteen retail trade industries across 225 U.S. cities. In nearly every industry we examine, establishments are larger in larger cities, and in four industries the dispersion of establishment sizes depends on market size. Models of competition in which individual producers' markups do not depend on the number of producers are inconsistent with these observations. Models in which competition is tougher in larger markets can reproduce the positive effect of market size on establishments' average size.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9113.

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Date of creation: Aug 2002
Date of revision:
Publication status: published as Campbell, Jeffrey R. and Hugo A. Hopenhayn. "Market Size Matters," Journal of Industrial Economics, 2005, v53(1,Mar), 1-25.
Handle: RePEc:nbr:nberwo:9113
Note: IO
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