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Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry

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  • Allan Collard-Wexler

Abstract

Fluctuations in demand cause some plants to exit a market and other to enter. Would eliminating these �uctuations reduce plant turnover? A structural model of entry and exit in concentrated markets is estimated for the ready-mix concrete industry, using plant level data from the U.S. Census. The Nested Pseudo-Likelihood algorithm is used to �nd parameters which rationalize behavior of �rms involved in repeated competition. Due to high sunk costs, turnover rates would only be reduced by 3% by eliminating demand �uctuations at the county level, saving around 20 million dollars a year in scrapped capital. However, demand �uctuations blunt �rms�incentive to invest, reducing the number of large plants by more than 50%.

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  • Allan Collard-Wexler, 2006. "Plant Turnover and Demand Fluctuations in the Ready-Mix Concrete Industry," Working Papers 06-08, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:06-08
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    Cited by:

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    2. Aguirregabiria, Victor & Mira, Pedro, 2010. "Dynamic discrete choice structural models: A survey," Journal of Econometrics, Elsevier, vol. 156(1), pages 38-67, May.
    3. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2013. "Entry, exit, and the determinants of market structure," RAND Journal of Economics, RAND Corporation, vol. 44(3), pages 462-487, September.
    4. Hiroyuki Kasahara & Katsumi Shimotsu, 2012. "Sequential Estimation of Structural Models With a Fixed Point Constraint," Econometrica, Econometric Society, vol. 80(5), pages 2303-2319, September.
    5. Aguirregabiria, Victor, 2012. "A method for implementing counterfactual experiments in models with multiple equilibria," Economics Letters, Elsevier, vol. 114(2), pages 190-194.
    6. Daniel Ackerberg & Xiaohong Chen & Jinyong Hahn, 2012. "A Practical Asymptotic Variance Estimator for Two-Step Semiparametric Estimators," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 481-498, May.
    7. Doraszelski, Ulrich & Satterthwaite, Mark, 2007. "Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity," CEPR Discussion Papers 6212, C.E.P.R. Discussion Papers.
    8. Allan Collard-Wexler, 2010. "Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry," 2010 Meeting Papers 105, Society for Economic Dynamics.
    9. Michaela Draganska & Sanjog Misra & Victor Aguirregabiria & Pat Bajari & Liran Einav & Paul Ellickson & Dan Horsky & Sridhar Narayanan & Yesim Orhun & Peter Reiss & Katja Seim & Vishal Singh & Raphael, 2008. "Discrete choice models of firms’ strategic decisions," Marketing Letters, Springer, vol. 19(3), pages 399-416, December.
    10. Carlos Daniel Santos, 2009. "Recovering the Sunk Costs of R&D: the Moulds Industry Case," CEP Discussion Papers dp0958, Centre for Economic Performance, LSE.
    11. Kasahara, Hiroyuki & 笠原, 博幸 & Shimotsu, Katsumi & 下津, 克己, 2011. "Sequential Estimation of Dynamic Programming Models with Unobserved Heterogeneity," Discussion Papers 2011-03, Graduate School of Economics, Hitotsubashi University.
    12. Jonathan Vogel, 2008. "Spatial Competition with Heterogeneous Firms," Journal of Political Economy, University of Chicago Press, vol. 116(3), pages 423-466, June.
    13. Hu, Yingyao & Shum, Matthew, 2012. "Nonparametric identification of dynamic models with unobserved state variables," Journal of Econometrics, Elsevier, vol. 171(1), pages 32-44.
    14. Andrew Figura, 2006. "Why are plant deaths countercyclical: reallocation timing or fragility?," Finance and Economics Discussion Series 2006-31, Board of Governors of the Federal Reserve System (U.S.).
    15. Ulrich Doraszelski & Mark Satterthwaite, 2010. "Computable Markov‐perfect industry dynamics," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 215-243, June.
    16. Wijayasundara, Mayuri & Mendis, Priyan & Zhang, Lihai & Sofi, Massoud, 2016. "Financial assessment of manufacturing recycled aggregate concrete in ready-mix concrete plants," Resources, Conservation & Recycling, Elsevier, vol. 109(C), pages 187-201.
    17. Andrew Figura, 2006. "Why Are Plant Deaths Countercyclical: Reallocation Timing or Fragility?," Working Papers 06-24, Center for Economic Studies, U.S. Census Bureau.
    18. Daniel Ackerberg & Xiaohong Chen & Jinyong Hahn, 2011. "Asymptotic Variance Estimator for Two-Step Semiparametric Estimators," Cowles Foundation Discussion Papers 1803, Cowles Foundation for Research in Economics, Yale University.
    19. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2009. "The Dynamics of Market Structure and Market Size in Two Health Service Industries," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 303-327, National Bureau of Economic Research, Inc.
    20. Timothy Dunne & Shawn Klimek & James Schmitz, Jr., 2010. "Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry," Working Papers 10-29, Center for Economic Studies, U.S. Census Bureau.
    21. Ulrich Doraszelski & Mark Satterthwaite, 2007. "Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity," Levine's Bibliography 321307000000000912, UCLA Department of Economics.
    22. Ariel Pakes, 2008. "Theory and Empirical Work on Imperfectly Competitive Markets," NBER Working Papers 14117, National Bureau of Economic Research, Inc.

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