Entry, exit, and the determinants of market structure

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 longrun fi...

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Bibliographic Details
Published in:The Rand journal of economics 2013-09, Vol.44 (3), p.462-487
Main Authors: Dunne, Timothy, Klimek, Shawn D., Roberts, Mark J., Xu, Daniel Yi
Format: Article
Language:English
Subjects:
Chiropractic medicine
Chiropractors
Cost allocation
Cost estimates
Cost estimation models
Cost of entry
Costs
Dentists
Determinants
Financial market structures
Fixed costs
Incumbents
Market entry
Market exit
Market structure
Market theory
Simulation
Statistical analysis
Structural analysis
Subsidies
U.S.A
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Summary: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 longrun 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.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12027