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Demand Fluctuations in the Ready‐Mix Concrete Industry
Author(s) -
CollardWexler Allan
Publication year - 2013
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.3982/ecta6877
Subject(s) - economics , smoothing , oligopoly , volatility (finance) , policy mix , econometrics , microeconomics , investment (military) , monetary economics , industrial organization , macroeconomics , cournot competition , politics , computer science , political science , law , computer vision
I investigate the role of demand shocks in the ready‐mix concrete industry. Using Census data on more than 15,000 plants, I estimate a model of investment and entry in oligopolistic markets. These estimates are used to simulate the effect of eliminating short‐term local demand changes. A policy of smoothing the volatility of demand has a market expansion effect: The model predicts a 39% increase in the number of plants in the industry. Since bigger markets have both more plants and larger plants, a demand‐smoothing fiscal policy would increase the share of large plants by 20%. Finally, the policy of smoothing demand reduces entry and exit by 25%, but has no effect on the rate at which firms change their size.