Entry, exit, innovation and an empirical application on the distribution of professional services in concentrated markets

Abstract

The present dissertation offers a broad of an extremely interesting field in the Industrial Organization called Industry Dynamics. This is about the way that an industry evolves in time and the determinants that characterize this transformation.At the first chapter we will consider the issue of entry, along with some stylized facts, as well as that of exit. Also, we will consider the issue of the long-run equilibrium that is shaped by entry and exit decisions. Moreover we will examine entry regulation and its impact. Additionally, aspects as structural entry barriers, entry rates, survival rates, productivity and growth, mobility and firms’ turnover are also considered. At the end of the chapter we examine if entry conditions vary across different markets and we introduce the subject of professional services we are going to be dealt thereafter.The second chapter examines in more detail the aspect of firm survival and examines its potential correlation with firm size. For this reason Gibrat’s Law is introduced in order to understand the size distribution of the firms. Convergence of firms sizes, the role of industry life cycle, the duration of new firms and insights of the role of innovation are given.The third chapter deals with the role of innovation and its effect on market structure. Aspects as the entry and the rate of innovation, innovation adoption and the Schumpeterian Hypothesis are discussed. Furthermore, two case studies –innovation in large and small firms and automobile industry-, comparison between competition and monopoly for the better innovative regime and the growth perspective of innovation are also included.The fourth chapter is about a relatively new approach to Industrial Organization, the New Empirical Industrial Organization and its methodology to solve the extent our knowledge about the mechanisms of the markets under interest. Structural models i.e. models that rely heavily on economic theory and game theoretic models are the basic tools to fulfill its purpose. Finally, the fifth chapter is an empirical application about the distribution of dentists on the Greek islands. By collecting raw data and following the methodology developed by Bresnahan and Reiss in a series of papers, I estimate four different ordered probit models of entry and calculate entry threshold and entry threshold ratios in order to understand the pattern of entry in the industry of health services in isolated markets i.e. markets that are geographically distinct from the mainland of Greece.