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Lower Bounds of Concentration in a Small Open Economy

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  • Pekka Ilmakunnas

Abstract

We examine how Sutton’s “bounds” approach works in a small country where industries have relatively high export and import intensities. Import competition is used as an indicator for the degree of competition in the low sunk cost industries. The bounds are estimated as stochastic frontiers, where observable industry characteristics, export intensity and entry barriers, are allowed to affect the mean and variance of the deviations from the frontier. In accordance with the theory, high R&D intensity industries have a lower bound for concentration, which is higher than that for low sunk cost intensity industries. For high advertising industries the theory does not hold as well. High import competition leads to a higher bound in the low sunk cost industries.
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  • Pekka Ilmakunnas, 2008. "Lower Bounds of Concentration in a Small Open Economy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 32(1), pages 19-33, February.
    • Handle: RePEc:kap:revind:v:32:y:2008:i:1:p:19-33
    DOI: 10.1007/s11151-008-9162-3
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    More about this item

    Keywords

    Concentration; R&D; Stochastic frontiers; Sunk costs; L11; L13; L60;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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