Koopmans, Reinout Michael
(1996)
Asymmetric industry structures: Multiple technologies, firm dynamics and profitability.
PhD thesis, London School of Economics and Political Science.
Abstract
The origins of asymmetric firm sizes are analyzed in the first part of this thesis, modelling technology choice in a one shot quantity game with homogeneous goods. For certain sizes of the market more than one technology is chosen in equilibrium. Generally, the larger the market, the higher the fixed cost of the technology that is chosen in equilibrium. The trade off between market size and concentration is non-monotonic, even if for any size of the market only the most fragmented market structure is considered. In the second part consequences of asymmetric firm sizes are investigated. In Chapter 3 firm dynamics in the chemical sector are examined, distinguishing between the dynamics of scale and scope. The production capacity of firms in homogeneous bulk chemical markets converges in size on a market by market basis, resulting in a fragmented industry structure on a disaggregated level. However, the number of products chemical corporations produce within a category of (synthetic organic) chemicals diverges, leading to a more concentrated industry structure on higher levels of aggregation. These counteracting forces can potentially explain the persistence of concentration that has been observed in fast growing chemical markets. In Chapter 4 it is shown that if the observed asymmetry between firms is consistent with a (subgame-perfect) equilibrium of some single or multi-stage game, bounds exist that restrict the degree of asymmetry between the firms' profitability. Their shape is determined by industry factors. In particular, a higher sensitivity of a firm's profitability on its competitor's action rotates the bounds on the profitability-size trade off anti-clockwise. This is tested for homogeneous goods industries using a panel from the FTC Line of Business Data. Allowing for firm specific fixed effects, some strong empirical support is found.
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