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 manuf...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110118154720 http://hdl.handle.net/10986/3312 |
| Summary: | 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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