The survivor technique and the cost frontier: A nonparametric approach

Abstract

The survivor technique provides a market selection method of identifying the most cost efficient scale of a firm in an industry. Some nonparametric extensions of this technique are considered here, which are based on estimating a cost frontier and then characterizing an intertemporal growth path for efficient firms in the industry. A dynamic process for entry and exit of firms can be suitably modeled in this framework of competitive industry equilibrium, where positive profits invite new entry (increased market share of firms following the optimal scale) and negative profits force exit of old firms (decreased market share).