Estimating the number of firms and capacity in small markets

Marcus Asplund and Rickard Sandin
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Rickard Sandin: Department of Economics, Postal: Stockholm School of Economics, Box 6501, 113 83 STOCKHOLM, SWEDEN

No 87, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: Many oligopoly theories predict that there will be 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 with a sample of 535 driving schools in 249 markets. With an ordered Probit, a Tobit, and a Poisson model we estimate the relation between the number of firms, capacity, and market size. We find a strong positive correlation between market size and the number of firms. The results show that the per firm market size is increasing in the number of firms in the market. The market size per capacity unit is smaller in large markets. Since the industry produces a fairly homogenous good, we argue that this is evidence that competition is increasing in market size.

Keywords: Industry structure; capacity; entry thresholds; count data; driving schools (search for similar items in EconPapers)
JEL-codes: C24 C25 D43 L11 L13 L89 R32 (search for similar items in EconPapers)
Pages: 25 pages
Date: 1996-01
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Published in Journal of Industrial Economics, 1999, pages 69-86.

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0087

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