35 Pages Posted: 18 Oct 2007
Date Written: October 2007
The relationship between the size of a market and the competitiveness of the market has been of long-standing interest to IO economists. Empirical studies have used the relationship between the size of the geographic market and both the number of firms in the market and the average sales of the firms to draw inferences about the degree of competition in the market. This paper extends this framework to incorporate the analysis of entry and exit flows. A key implication of recent entry and exit models is that current market structure will likely depend upon the history of past participation. The paper explores these issues empirically by examining producer dynamics for two health service industries, dentistry and chiropractic services. We find that the number of potential entrants and past number of incumbent firms are correlated with current market structure. The empirical results also show that as market size increases the number of firms rises less than proportionately, firm size increases, and average productivity increases. However, the magnitude of the correlations are sensitive to the inclusion of the market history variables.
Keywords: producer dynamics, entry and exit, market size
JEL Classification: LO, L1, L8
Suggested Citation: Suggested Citation
Dunne, Timothy and Klimek, Shawn D. and Roberts, Mark J. and Xu, Yi, The Dynamics of Market Structure and Market Size in Two Health Services Industries (October 2007). Federal Reserve Bank of Cleveland Working Paper No. 07-12; US Census Bureau Center for Economic Studies Paper No. CES-WP-07-26. Available at SSRN: https://ssrn.com/abstract=1021813 or http://dx.doi.org/10.2139/ssrn.1021813