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Competition in Large Markets

Jeffrey Campbell

No 11847, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover.

JEL-codes: L11 L81 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-ure
Note: EFG
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Published as Jeffrey R. Campbell, 2011. "Competition in large markets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(7), pages 1113-1136, November.

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Related works:
Journal Article: Competition in large markets (2011)
Working Paper: Competition in large markets (2005) Downloads
Working Paper: Competition in Large Markets (2005)
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