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The New Industrial Organization and Small Business

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  • Kwoka, John E, Jr
  • White, Lawrence J

Abstract

The small business sector is an important part of the American economic landscape, in both absolute and relative terms. Despite its absolute growth, however, the sector accounts for a diminishing share of private sector activity. But its importance, and changes in importance, vary across industrial sectors of the economy. Drawing on the theoretical and empirical insights developed in recent books by John Sutton, we suggest that the presence or absence of endogenous strategic behaviors of the larger firms with respect to advertising, promotion, research and development, and other sunk cost expenditures may well play an important role in explaining the differing levels of small business importance, both cross-sectionally and over time. We conclude the paper with suggestions for research directions that could shed further light on these ideas. Copyright 2001 by Kluwer Academic Publishers

Suggested Citation

  • Kwoka, John E, Jr & White, Lawrence J, 2001. "The New Industrial Organization and Small Business," Small Business Economics, Springer, vol. 16(1), pages 21-30, February.
    • Handle: RePEc:kap:sbusec:v:16:y:2001:i:1:p:21-30
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    References listed on IDEAS

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    1. Salop, Steven C & Scheffman, David T, 1983. "Raising Rivals' Costs," American Economic Review, American Economic Association, vol. 73(2), pages 267-271, May.
    2. Timothy F. Bresnahan & Shane Greenstein, 1999. "Technological Competition and the Structure of the Computer Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 47(1), pages 1-40, March.
    3. Salop, Steven C & Scheffman, David T, 1987. "Cost-Raising Strategies," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 19-34, September.
    4. Schmalensee, Richard, 1992. "Sunk Costs and Market Structure: A Review Article," Journal of Industrial Economics, Wiley Blackwell, vol. 40(2), pages 125-134, June.
    5. White, Lawrence J, 1982. "The Determinants of the Relative Importance of Small Business," The Review of Economics and Statistics, MIT Press, vol. 64(1), pages 42-49, February.
    6. Zoltan Acs & David Audretsch, 1990. "Innovation and Small Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011131, April.
    7. Timothy F. Bresnahan, 1992. "Sutton's Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 137-152, Spring.
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    Cited by:

    1. Lawrence J. White, 2002. "What's Been Happening To Aggregate Concentration in the United States? (And Should We Care?)," Working Papers 02-03, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Alfaro, Martín, 2020. "Market structures in small open economies: Evidence from Denmark," Research in Economics, Elsevier, vol. 74(4), pages 363-378.
    3. Alfaro, Martin & Warzynski, Frederic, 2021. "Trade liberalization with granular firms," Economic Modelling, Elsevier, vol. 105(C).
    4. Joost van Acht & Joop Stam & Roy Thurik & Ingrid Verheul, 2004. "Business Ownership and Unemployment in Japan," Tinbergen Institute Discussion Papers 04-036/3, Tinbergen Institute.
    5. Ioannis Kessides & Li Tang, 2010. "Sunk Costs, Market Contestability, and the Size Distribution of Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(3), pages 215-236, November.
    6. Rui Baptista & Roy Thurik, 2004. "The Relationship between Entrepreneurship and Unemployment: is Portugal an Outlier?," Papers on Entrepreneurship, Growth and Public Policy 2004-40, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    7. Maryanchyk Ivan, "undated". "Market Structure and Profitability in a Transition Economy: Ukrainian Case," EERC Working Paper Series 03-06e, EERC Research Network, Russia and CIS.
    8. David Audretsch & Roy Thurik, 2004. "A Model of the Entrepreneurial Economy," Papers on Entrepreneurship, Growth and Public Policy 2004-12, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    9. Lawrence J. White, 2002. "Trends in Aggregate Concentration in the United States," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 137-160, Fall.
    10. Roy Thurik, 2003. "Entrepreneurship and Unemployment in the UK," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(3), pages 264-290, August.
    11. Hinson, Roger A. & Sinoha, Ramona & Reaves, Dixie Watts, 2006. "Industry Concentration Impacts on Business Strategies Used by Small Produce Wholesalers," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35291, Southern Agricultural Economics Association.

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    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D20 - Microeconomics - - Production and Organizations - - - General

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