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Markets and the non‐monotonic relation between productivity and establishment size

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  • Sasan Bakhtiari

Abstract

A model of monopolistic competition is presented in which the relation between the productivity and input size of producers is non‐monotonic and bell‐shaped. The model predicts that markets matter and the average size of the producers is directly scaled by the size of the market. An indirect effect increases the cutoff productivity, making the bell narrower in larger markets or when the transportation cost falls. Empirical evidence from the concrete industry and a few other 4‐digit industries supports the model’s predictions. The bell‐shaped relation has especially important implications on how size distributions are formed across localized versus globalized market industries. On présente un modèle de concurrence monopolistique dans lequel la relation entre la productivité et la taille de l’établissement de production mesurée par les intrants n’est pas monotone mais en forme de cloche. Le modèle prédit que la taille du marché est importante: la taille moyenne des producteurs dépend directement de la taille du marché. Un effet indirect accroît la taille minimale requise (celle du producteur le moins efficient qui reste viable): ce qui fait que la cloche est plus étroite dans les grands marchés ou quand les coûts de transport chutent. Des résultats empiriques pour l’industrie du ciment et quelques autres industries (code à quatre chiffres) supportent les prédictions du modèle. La relation en forme de cloche a des implications particulièrement importantes sur la façon dont se forment les distributions de la taille des établissements dans les industries dont le marché est local par opposition à global.

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  • Sasan Bakhtiari, 2012. "Markets and the non‐monotonic relation between productivity and establishment size," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(1), pages 345-372, February.
    • Handle: RePEc:wly:canjec:v:45:y:2012:i:1:p:345-372
    DOI: 10.1111/j.1540-5982.2011.01698.x
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    References listed on IDEAS

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    1. Sasan Bakhtiari, 2021. "Trends in Market Concentration of Australian Industries," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(1), pages 57-75, March.
    2. Bakhtiari, Sasan, 2017. "Corporate credit ratings: Selection on size or productivity?," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 84-101.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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