Abstract

http://ssrn.com/abstract=1747443
 
 

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Sunk Costs, Market Contestability, and the Size Distribution of Firms


Ioannis Kessides


World Bank

Li Tang


affiliation not provided to SSRN

January 1, 2011

World Bank Policy Research Working Paper No. 5540

Abstract:     
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.

Number of Pages in PDF File: 29

Keywords: Markets and Market Access, Economic Theory & Research, Water and Industry, Access to Markets, Debt Markets

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Date posted: January 25, 2011  

Suggested Citation

Kessides, Ioannis and Tang, Li, Sunk Costs, Market Contestability, and the Size Distribution of Firms (January 1, 2011). World Bank Policy Research Working Paper Series, Vol. , pp. -, 2011. Available at SSRN: http://ssrn.com/abstract=1747443

Contact Information

Ioannis N. Kessides (Contact Author)
World Bank ( email )
1818 H Street, NW
Washington, DC 20433
United States
Li Tang
affiliation not provided to SSRN
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References:  51
Citations:  2

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