Martin Carree, University of Maastricht, Maastricht, The Netherlands, Marcus Dejardin, University of Namur
, Namur, Belgium
The Error-Correction Value of Markets and Entrepreneurship - An Assessment through Firm Entry and Exit Flows in Local Retailing Industries (assigned to theme
In their seminal paper, Bresnahan and Reiss (1991) have proposed an empirical framework for the assessment of the effects of entry in concentrated markets. The amount of total profits, market size and structure, determine the number of firms that are active on the market. In their comprehensive setting, Bresnahan and Reiss do not give any room however for entrepreneurial alertness that may rise from market disequilibrium (Kirzner, 1973, 1979), entrepreneurial error and adjustment processes. This paper extends the above-mentioned literature by crossing their respective contribution. We first briefly discuss the theoretical microfoundations of each of these distinguished approaches. The results of that discussion involve a two-steps reasoning. First, given market size, market structure and market geographical density, we should be able to anticipate the equilibrium number of firms on a particular market. Comparing this number with the actual or observed number of firms allows the assessment of deviations, and their intensity, from equilibrium. There could be excess or shortage in the number of firms. In both cases, adjustment processes, relying on entrepreneurial alertness and market conditions, are expected and may be estimated. The empirical part of the paper exploits a detailed Belgian database on firm stocks, entries and exits in retailing industries and market factors, all data being measured at a very disaggregated level (both industry and geographical levels). The specification of the two-steps econometric model allows the measurement of each distinguished effects and for territorial potential interactions.
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