Sunk costs, market contestability, and the size distribution of firms
This paper offers a new economic explanation for the observed inter-industry differences in the size distribution of firms. The empirical estimates--based on three temporal (1982, 1987, and 1992) cross-sections of the four-digit United States manufacturing industries--indicate that increased market contestability, as signified by low sunk costs, tends to reduce the dispersion of firm sizes. These findings provide support for one of the key predictions of the theory of contestable markets: that market forces under contestability would tend to render any inefficient organization of the industry unsustainable and, consequently, tighten the distribution of firms around the optimum.
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Paper provided by The World Bank in its series Policy Research Working Paper Series with number
5540.
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| Date of creation: | 01 Jan 2011 |
| Handle: | RePEc:wbk:wbrwps:5540 |
| Contact details of provider: | Postal: 1818 H Street, N.W., Washington, DC 20433 Phone: (202) 477-1234 Web page: http://www.worldbank.org/ Email: More information through EDIRC
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References listed on IDEAS
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