Premium
Entry, exit, and the determinants of market structure
Author(s) -
Dunne Timothy,
Klimek Shawn D.,
Roberts Mark J.,
Xu Daniel Yi
Publication year - 2013
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12027
Subject(s) - subsidy , barriers to entry , economic shortage , competition (biology) , fixed cost , business , industrial organization , market structure , labour economics , economics , microeconomics , market economy , ecology , linguistics , philosophy , government (linguistics) , biology
This article estimates a dynamic, structural model of entry and exit for two US service industries: dentists and chiropractors. Entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short‐run price competition are important determinants of long‐run firm values, firm turnover, and market structure. In the dentist industry entry costs were subsidized in geographic markets designated as Health Professional Shortage Areas (HPSA) and the estimated mean entry cost is 11 percent lower in these markets. Using simulations, we find that entry cost subsidies are less expensive per additional firm than fixed cost subsidies.