Market Size Matters
53 Pages Posted: 16 Aug 2002 Last revised: 29 Nov 2022
There are 2 versions of this paper
Date Written: August 2002
Abstract
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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