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A Note on Endogenous Market Structure under Heterogeneous Firms

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  • Benjamin C. Anderson

Abstract

Industries, such as semiconductors and biotechnology, are characterized by heterogeneous research productivity and vertically differentiated products. In this note, I relax the assumption of symmetric R&D costs in Sutton [1998] and derive the lower bounds to market concentration when entry and R&D investments in product quality are jointly determined. I show that the lower bound to concentration depends on the degree of vertical differentiation, which is a function of market size and quality choices. My findings imply that empirical applications that fail to account for differences in quality will be biased towards the null hypothesis of exogenous entry costs otherwise.

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  • Benjamin C. Anderson, 2020. "A Note on Endogenous Market Structure under Heterogeneous Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 68(3), pages 582-590, September.
    • Handle: RePEc:bla:jindec:v:68:y:2020:i:3:p:582-590
    DOI: 10.1111/joie.12232
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    References listed on IDEAS

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    1. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
    2. Daron Acemoglu & Ufuk Akcigit & Harun Alp & Nicholas Bloom & William Kerr, 2018. "Innovation, Reallocation, and Growth," American Economic Review, American Economic Association, vol. 108(11), pages 3450-3491, November.
    3. Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 0, pages 00, Elsevier.
    4. Steven Berry & Joel Waldfogel, 2010. "Product Quality And Market Size," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 1-31, March.
    5. Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1, May.
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    7. Shantanu Dutta & Om Narasimhan & Surendra Rajiv, 2005. "Conceptualizing and measuring capabilities: methodology and empirical application," Strategic Management Journal, Wiley Blackwell, vol. 26(3), pages 277-285, March.
    8. Sutton, John, 2007. "Market Structure: Theory and Evidence," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 35, pages 2301-2368, Elsevier.
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