Demand Growth, Profitability, and Entry

Takeo Nakao

The Quarterly Journal of Economics, 1980, vol. 94, issue 2, 397-411

Abstract: The purpose of this paper is to elucidate on the effect of demand growth on the competitive structure of an industry. We describe the effects of growth of market demand on concentration, barriers to entry, and the rate of return on capital. To illustrate these effects, we examine the behavior of an established firm in a fast growing industry, formulating an entry decision model of a potential firm. Our model lends support to the view that the increase in the growth rate of demand increases the dominant firm's profit rate, but decreases its market share.

Date: 1980
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