Sunk costs, market contestability, and the size distribution of firms [electronic resource] / Ioannis N. Kessides
Material type:
TextPublication details: Washington, D.C., The World Bank, 2011Description: 1 online resource (29 p.)Subject(s): Access to Markets | Affiliated organizations | Debt Markets | Economic performance | Economic reform | Economic Theory & Research | Industry | Market access | Markets and Market Access | Multinational firms | Water and IndustryAdditional physical formats: Kessides, Ioannis N.: Sunk costs, market contestability, and the size distribution of firms.Online resources: Click here to access online 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.
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.
There are no comments on this title.