TY - JOUR AU - Dunne,Timothy AU - Klimek,Shawn D. AU - Roberts,Mark J. AU - Xu,Daniel Yi TI - Entry, Exit, and the Determinants of Market Structure JF - National Bureau of Economic Research Working Paper Series VL - No. 15313 PY - 2009 Y2 - September 2009 UR - http://www.nber.org/papers/w15313 L1 - http://www.nber.org/papers/w15313.pdf N1 - Author contact info: Timothy Dunne Department of Economics Hester Hall University of Oklahoma Norman, OK 73019 Tel: 405 325 2863 E-Mail: tim.dunne@clev.frb.org Shawn D. Klimek Center for Economic Studies U.S. Census Bureau 4600 Silver Hill Rd Washington, DC 20233 Tel: (301) 763-2861 Fax: (301) 763-5935 E-Mail: shawn.d.klimek@census.gov Mark J. Roberts Department of Economics 513 Kern Graduate Building Pennsylvania State University University Park, PA 16802 Tel: 814/863-1535 Fax: 814/863-4775 E-Mail: mroberts@psu.edu Daniel Xu Department of Economics Duke University 213 Social Science Bldg 419 Chapel Drive Box 90097 Durham, NC 27708-0097 Tel: 919-660-1824 E-Mail: daniel.xu@duke.edu AB - Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly. ER -