TY  - JOUR
AU  - Campbell,Jeffrey R.
TI  - Competition in Large Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11847
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11847
L1  - http://www.nber.org/papers/w11847.pdf
N1  - Author contact info:
Jeffrey R. Campbell
Senior Economist
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604-1413
Tel: 312/322-6156
Fax: 312/322-2357
E-Mail: jcampbell@frbchi.org
AB  - This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover.
ER  -