The Number of Firms and Production Capacity in Relation to Market Size

Marcus Asplund and Rickard Sandin

Journal of Industrial Economics, 1999, vol. 47, issue 1, 69-85

Abstract: Many oligopoly theories predict a positive correlation between market size and the equilibrium number of firms and some also imply that competition is more intense in larger markets. We test these predictions on a sample of driving schools in 250 Swedish regional markets by estimating the relation between the number of firms, production capacity, and market size. The number of firms increases less than proportionally with market size. Market size per capacity unit is smaller in large markets. Since firms produce a fairly homogenous good, we argue that this is evidence that profits per capita is decreasing in market size.

Date: 1999
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