TY  - JOUR
AU  - Syverson,Chad
TI  - Market Structure and Productivity: A Concrete Example
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10501
PY  - 2004
Y2  - May 2004
UR  - http://www.nber.org/papers/w10501
L1  - http://www.nber.org/papers/w10501.pdf
N1  - Author contact info:
Chad Syverson
Department of Economics
University of Chicago GSB
5807 S. Woodlawn Ave.
Chicago, IL  60637
Tel: 773/702-7815
Fax: 773/702-8490
E-Mail: syverson@uchicago.edu
AB  - 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.
ER  -