Market Structure and Productivity: A Concrete Example

Abstract

Many studies have documented large and persistent productivity differences across producers, even within narrowly defined industries. This paper both extends and departs from the past literature, which focused on technological explanations for these differences, by proposing that demand-side features also play a role in creating the observed productivity variation. The specific mechanism investigated here is the effect of spatial substitutability in the product market. When producers are densely clustered in a market, it is easier for consumers to switch between suppliers (making the market in a certain sense more competitive). Relatively inefficient producers find it more difficult to operate profitably as a result. Substitutability increases truncate the productivity distribution from below, resulting in higher minimum and average productivity levels as well as less productivity dispersion. The paper presents a model that makes this process explicit and empirically tests it using data from U.S. ready-mixed concrete plants, taking advantage of geographic variation in substitutability created by the industry's high transport costs. The results support the model's predictions and appear robust.Markets with high demand density for ready-mixed concrete-and thus high concrete plant densities-have higher lower-bound and average productivity levels and exhibit less productivity dispersion among their producers.

Small firms in Portugal: a selective survey of stylized facts, economic analysis, and policy implications

“…They show that, in geographical markets where demand density is greater, and thus market competition more intense, the average life span of an entrant is lower. Although they do not directly present theoretical or empirical results on productivity level, this result is consistent with Syverson (2004b) on the disciplining effects of competition.…”

“…If the more productive firms price above cost, then less efficient firms may be able to survive (if with lower margins). Syverson (2004b) tests this hypothesis in the concrete industry. He shows that, in geographical areas where there is less competition, there is also greater variability in productivity levels.…”

A Microeconometric Model of Firm Turnover

“…However obtaining such detailed information is not a trivial matter and consequently systematic study of firm turnover is hampered by data requirements. And even if such data were available, analysis of it using modern models of firm dynamics [24] may not be feasible due to Syverson's [3] claim that "data-gathering empirical economists know how famously possessive firms are about their cost data" (p. 1189).…”

“…On the other hand, higher values of α increase entry probabilities but decrease exit probabilities. Thus α might be parameterized to depend on measures related to profitability such as population growth, income growth, and firm density [3]. In this manner, the countervailing forces which are associated with positively and negatively correlated rates of entry and exit can be introduced.…”

Industry regulation, competition, and the dynamics of productivity growth: evidence from China’s iron and steel industry

“…Theoretical and empirical research has extensively pointed out that market competition is an important force in the promotion of TFP growth at the corporate level and in the efficiency enhancement of resource allocation at the crossenterprise level (Vickers, 1995;Nickell, 1996;Disney, Haskel and Heden, 2003;Syverson, 2004;Holmes and Schmitz, 2010). These studies suggest that the three channels exist for the enhancement of the overall industrial productivity through market competition.…”