Entry, Exit, and the Determinants of Market Structure

50 Pages Posted: 22 Mar 2015

See all articles by Timothy Dunne

Timothy Dunne

Federal Reserve Bank of Cleveland

Shawn D. Klimek

U.S. Census Bureau - Center for Economic Studies

Mark J. Roberts

Pennsylvania State University - College of the Liberal Arts - Department of Economics; National Bureau of Economic Research (NBER)

Daniel Yi Xu

Duke University

Multiple version iconThere are 4 versions of this paper

Date Written: October 2013

Abstract

This paper estimates a dynamic, structural model of entry and exit in an oligopolistic industry and uses it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. Entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all found to be important determinants of long-run firm values, firm turnover, and market structure. Estimates for the dentist industry allow the entry cost to differ for geographic markets that were designated as Health Professional Shortage Areas and in which entry was subsidized. The estimated mean entry cost is 11 percent lower in these markets. Using simulations, we compare entry-cost versus fixed-cost subsidies and find that entry-cost subsidies are less expensive per additional firm.

Keywords: entry, exit, market structure, competition, service industry

JEL Classification: L11, L13, L84

Suggested Citation

Dunne, Timothy and Klimek, Shawn D. and Roberts, Mark J. and Yi Xu, Daniel, Entry, Exit, and the Determinants of Market Structure (October 2013). FRB Atlanta Working Paper No. 2013-10. Available at SSRN: https://ssrn.com/abstract=2579823 or http://dx.doi.org/10.2139/ssrn.2579823

Timothy Dunne (Contact Author)

Federal Reserve Bank of Cleveland ( email )

PO Box 6387
Cleveland, OH 44101-1387
United States

Shawn D. Klimek

U.S. Census Bureau - Center for Economic Studies ( email )

4600 Silver Hill Road
Washington, DC 20233
United States
(301) 763-2861 (Phone)
(301 763-5935 (Fax)

HOME PAGE: http://www.ces.census.gov

Mark J. Roberts

Pennsylvania State University - College of the Liberal Arts - Department of Economics ( email )

513 Kern Graduate Building
University Park, PA 16802-3306
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel Yi Xu

Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0204
United States

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