Market structures in small open economies: Evidence from Denmark

Abstract

This paper provides some stylized facts about market structure in Denmark, a country exhibiting high rates of exports and imports as is common in small developed economies. Utilizing disaggregated data at the firm-product level for manufacturing industries, we highlight the widespread presence of industries that are neither purely oligopolistic or monopolistically competitive; rather, they contain a few domestic leaders with numerous firms having insignificant domestic market shares. We also document that, relative to the latter type of firms, leaders have greater labor productivity, are more capital intensive, and pay higher wages; additionally, they are more likely to export and import, although they exhibit a greater domestic intensity relative to exporters with negligible domestic market shares. Finally, through a model of leaders and followers, we investigate how leaders can benefit from acting strategically against small firms and quantify its potential impact on industry outcomes through a numerical exercise.