Small Number Of Firms Research Articles

Simple model of market share dynamics based on clients’ firm-switching decisions

Firms compete for clients, creating distributions of market shares ranging from domination by a few giant companies to markets in which there are many small firms. These market structures evolve in time, and may remain stable for many years before a new firm emerges and rapidly obtains a large market share. We seek the simplest realistic model giving rise to such diverse market structures and dynamics. We focus on markets in which every client adopts a single firm, and can, from time to time, switch to a different firm. Examples include markets of cell phone and Internet service providers, and of consumer products with strong brand identification. In the model, the size of a particular firm, labelled i, is equal to its current number of clients, ni. In every step of the simulation, a client is chosen at random, and then selects a firm from among the full set of firms with probability pi=(niα+β)/K, where K is the normalization factor. Our model thus has two parameters: α represents the degree to which firm size is an advantage (α>1) or disadvantage (α<1), relative to strict proportionality to size (α=1), and β represents the degree to which small firms are viable despite their small size. We postulate that α and β are determined by the regulatory, technology, business culture and social environments. The model exhibits a phase diagram in the parameter space, with different regions of behaviour. At the large α extreme of the phase diagram, a single dominant firm emerges, whose market share depends on the value of β. At the small α extreme, many firms with small market shares coexist, and no dominant firm emerges. In the intermediate region, markets are divided among a relatively small number of firms, each with sizeable market share but with distinct rankings, which can persist for long times before changing. We compare the model results to previously published empirical data from a broad range of Japanese industries, and find good agreement with a central statistical result relating the standard deviation of market share changes to the value of the market share before the change.

Speed and Scaling: An Investigation of Accelerated Firm Growth

AbstractWhile most firms do not grow, a small number of firms are able to maintain and accelerate their growth over time. Researchers, practitioners, and policymakers continue to question the factors which increase a firm's chances of growing rapidly and becoming a more powerful economic driver. Using a robust longitudinal data set from the United Kingdom (UK) during the period from 2000 to 2017, we investigate the propensity of firms to accelerate growth in sales, employment, market share, and productivity. We report varying effects of firm characteristics, industry competitive factors, and regional factors as drivers of accelerated growth. This study will help policymakers and firm managers understand the forces behind different types of acceleration, and it provides a foundation for future research on the speed of firm growth.

ANTITRUST AND INEQUALITY

ANTITRUST AND INEQUALITY

Ownership, control, group affiliations, and wealth concentration: The case of a developing market

The aim of this paper is to assess ownership and control of Jordanian listed firms by identifying group affiliations, control-enhancing mechanisms, and the wealth of controlling owners. Hand-collected data for 237 firms listed on the Amman Stock Exchange (ASE) is used to identify ultimate owners, construct affiliated groups, and compute the separation between cash flow rights and control rights created by pyramid structures and cross-holdings. The findings indicate that more than one-third of listed firms are group-affiliated, the majority of listed firms are controlled by families then by foreigners and a small number of firms are controlled by the state. They also indicate that family and foreign investors use pyramids to enhance their control of business groups creating a wedge between cash flow and control rights with pronounced use of pyramids among foreign firms. In addition, the top family and foreign owners control at least 22% of corporate assets with half of this control being exercised by foreign investors originating from the Gulf region. The latter finding has important implications regarding the ongoing impact of the Arab Gulf on capital formation in the Middle East and North Africa (MENA) region.

Is Netflix a threat to the cable TV industry? Evidence from Brazil

In recent years, the Brazilian cable TV industry has experienced a sharp downturn. In parallel, the over-the-top platform Netflix gained popularity and Brazil has become one of its biggest markets. The objective of this paper is to investigate the competitive effects of Netflix's entry on the incumbent cable TV industry. We explore the regional variability of Netflix's popularity (measured by Google Trends) and combined this information with official data of the cable TV market. Using a two-way fixed effects estimator with state-month observations (covering the period of 2012–2019), we showed that the increase in one standard deviation in Netflix popularity is associated with a 3.62% reduction in the density of cable TV subscribers and with a 19.69% reduction in the number of small firms that operate cable TV.

Social ties and the political participation of firms

It is widely accepted that better-connected firms exercise more political influence. However, because both social ties and political influence are difficult to observe, it remains little understood how different types of ties affect different types of political action. We develop new theory that contrasts the effects of ties to other firms in the same industry (peer ties) with ties to elected officials and bureaucrats (government ties). We argue that peer ties are useful for facilitating collective action, which is most often used to seek influence over broad policy issues that affect many firms. In contrast, while government ties are more versatile, these should primarily also allow firms to pursue narrow, particularistic issues that benefit only one or a small number of firms. Using a new survey of foreign-owned firms operating in the Philippines, we demonstrate that peer ties play an important role in firms’ efforts to influence policy at the national level, where issues are more likely to affect large numbers of firms. Government ties are also valuable, though primarily at the local level, where issues are more likely to affect a smaller number of firms.

Small business development and resource use in Russian regions

Relevance. The living standards in any country largely depend on how developed is this country’s business sector. The latter, in its turn, relies on the availability and efficient use of resources. The problem that arises in this respect and that this study seeks to address is how to measure the resource potential available for the development of small businesses in order to choose the optimal strategy of stimulating this sector for this or that region. Research objective. The aim of this research is to study resources available to small businesses and their use in Russian regions. Data and methods. The set of indicators used in our analysis helps us measure the activity of small businesses in Russian federal districts. The key elements of the assessment are based on the official statistics and include the following: average labor productivity of small businesses, the unit turnover per small enterprise, the number of small firms per 10,000 people. Each of these indicators was analyzed by using the methods of mathematical statistics according to the three criteria: stability (S); average values (M); and the variability of the results (V), which characterizes interregional differentiation within a federal district/country. Results. The article proposes a system of indicators for diagnosing small business development based on the concentration and performance of small-sized enterprises. The quantitative results of such analysis can be used for choosing strategies of small business development. Conclusion. There was a significant decline in entrepreneurial activity during the post-crisis period of 2017-2018 in Russia, which could be explained by the impact of foreign sanctions and the difficult economic situation in the country (inflation, a sharp rise in the price of resources, difficulties in communication with international partners, and the difficulty or even impossibility to adopt efficient technologies in a short time). As our analysis has shown, some of the Russian territories still have underutilized resource potential that can be used for stimulating small business development.

Accounting comparability and accruals-based earnings management: Evidence on listed firms in an emerging market

Users of financial statements are in a better position to evaluate the performance of the firm in question if its accounting system and methods are comparable with those of other firms. Even though accounting comparability is markedly beneficial, the empirical studies on its impact on earnings management are scant, especially in the context of developing countries that have not applied International Financial Reporting Standards (IFRS). In the present study, we examined the association between comparability and accruals-based earnings management, considering the moderating impacts of financial constraints in the context a developing economy. The article used a sample of 502 Vietnamese non-financial listed firms from 2010 to 2019. Three proxies of comparability and two measures of accruals-based earnings manipulation, together with several empirical strategies, are employed. First, the research provides evidence suggesting that comparability reduces firms’ tendency to engage in earnings management. Furthermore, there is evidence suggesting that firms could give more weighting to the comparability with a small number of firms rather than various firms in the same industry. Second, we are the first to identify that financial constraints have a moderating effect: more constrained firms do not reduce earnings manipulation as their accounting comparability improves. Based on research findings, we provided implications to stakeholders and propose directions for future studies.

Innovation performance of biotechnology firms in Bulgaria: opportunities for enhancing

This paper deals with the investigation of the possibilities to improve the innovation performance in Bulgarian biotechnology firms. The main research purpose is to analyze Bulgaria's position concerning the innovative development of bio-based production. Methodological tools of the research methods were processing quantitative data, content analysis, and comparative situational analysis in combination with dynamic graphic analysis. The results of the research showed that there is a significant deficit in Bulgaria in the innovative development of biotechnology firms. The enhancement of the innovative biotechnological state of Bulgarian firms is a matter of great importance to their successful production and market performance on both the local and international markets. A small number of firms manage to find an adequate solution to creating stable market advantages and face insurmountable difficulties in trying to make it on the global market. Furthermore, Bulgaria's membership in the EU creates additional formal demands for providing a high quality of the production process, putting the local biotechnology firms in an even more challenging position. It suggests that companies need to focus their attention on producing goods with high added value (which is the basis of innovation) and applying and perfecting successful market-oriented approaches. In that relation, the arguments were summarized for the practical benefits of designing a complete model focused on biotechnology firms' market orientation, which is of crucial importance for their long-term innovative development. The study presents an author's conceptual model for measuring innovation performance of biotechnology firms which contains three constructs: market orientation, knowledge integration orientation, R&amp;D effectiveness. The results from the conducted research could be helpful to research and practice R&amp;D developers of firms with an established presence and long market history and upstart enterprises that cannot rely on income from their market activity, market or production experience.

Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks*

ABSTRACTRegulation Fair Disclosure (Reg FD) Form 8‐K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intraday and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre‐disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre‐disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8‐K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release.

Preempting the Entry of Near Perfect Substitutes

Abstract When firms compete on price and quality-enhancing promotion in a market for differentiated products, entry of a nearly perfect substitute to one of such products, for example, a generic version of a pharmaceutical drug, intensifies price competition but softens quality competition. We show that consumers are likely to gain from entry when quality is relatively unimportant for them, when business stealing generated by promotion is substantial, and when products are poor substitutes. We also show that entry may be more attractive for consumers in less concentrated markets, as a smaller number of firms and asymmetric market shares may be associated with higher quality.

Opioid Oligopoly and the Seven Deadly Sins (007)

An oligopoly is defined as a market structure with a small number of firms that dominate an industry, of which none can keep the other from significantly influencing the market. This market structure is distinctly different from other market forms. In today’s market, the oligopoly structure is the most common market structure. It can be argued that the few pharmaceutical companies who market, manufacture, and distribute opioids all over the world constitute “opioid oligopoly.” Bachtell has reported that dozens of opioid manufacturers, distributors, pharmacies, and doctors turn a blind eye to the opioid crisis swamping the United States.

Speed and Scaling: An Investigation of the Acceleration of Firm Growth

Most firms do not grow, while a small number of firms not only maintain their growth but are able to accelerate it over time. Researchers, practitioners and policymakers continue to question what factors facilitate or indicate that a firm has a greater chance to grow more rapidly and become a more powerful economic driver. Using a robust longitudinal dataset from the United Kingdom (UK) during 2000–2017, we investigate the propensity of firms to accelerate in sales, employment, labor productivity and relative market share growth. We find that firm, industry and regional level factors help explain whether organizations become scale-ups and achieve accelerated firm growth. This study adds new insights into the conceptual models available to policymakers and firm managers so that they can better understand the key factors of firm growth acceleration. In doing so, this study paves the way for further investigations into the speed of firm growth.

Putting UK research within reach

Putting UK research within reach

Competitive Domestic Purchase Requirement

We consider the problem of allocating a tariff-rate quota among a small number of firms which act as middlemen between competitive producers and atomistic consumers and can import a perfect substitute at a fixed world price. We compare the traditional license-on-demand regime to administer such quotas with a domestic purchase requirement under which each firm is allocated a share of the quota that corresponds to the share of the total quantity bought from domestic suppliers. We give conditions such that the domestic purchase requirement strictly welfare-dominates the license system. Moreover, we show that for any binding import quota the welfare maximizing number of firms is finite.

Merger Control in the Age of Digital Markets

The growth of Internet access enabled the creation of functions (e.g., e-commerce and search) that were initially convenient but which a small number of firms used to achieve winner-takes-all, through the application of ICTs, network externalities and two-sided markets. They turned themselves into platforms that now extract massive quantities of ever more personal data allowing them to direct advertisements and customised offers intended to increase the spending of individuals. These present novel challenges to competition authorities that are imperfectly explained in economic theory, with the platforms lobbying aggressively to insist they improve consumer welfare. The GAFA (Google, Apple, Facebook & Amazon) platforms have also acquired hundreds of start-ups, with limited revenues, no profits and no easily defined market, but with considerable potential in future competition and revenues, judging by the prices paid. China has its own set of firms and institutions, behind its Great Fire Wall, with similar issues concerning platforms, but apparently not yet attracting the same level of attention. Africa has a mixture of GAFA and its own, rather smaller, platforms together with the more powerful mobile operators with their increasing financial services platforms. Institutions in Africa are weaker, with many countries lacking one or more of antitrust, cybersecurity or data protection agencies, limiting their ability to ensure proper functioning of markets.

Drivers of exceptional job creation – a dynamic probit approach using portuguese firm-level data

It is a well-established fact that a small number of firms, known as Gazelles, drive a disproportionately large amount of net job creation. This fact has attracted considerable attention from researchers, who have been focusing on trying to understand what differentiates this type of firms from their slow-growth peers. In this paper, we expand the ongoing survey on Gazelles by focusing on the Portuguese case. Particularly, we examine how is high-growth associated with the firms´ age, access to equity and external finance and the workforce human capital. We also test whether high-growth is linked with the firms´ ability to export and innovate through R&D. In this paper, we also explore whether high-growth episodes display some form of state dependency by adding a dynamic component in the form of the lagged value of the Gazelle status. As for results, we find no supporting evidence in favour of persistency, as past growth events are negatively associated with current growth. This is in line with the recent literature on the topic that points to the lack of persistence in the growth process as a consistent enough result worth of being considered as a stylized fact about Gazelles. Nevertheless, we do find that younger firms are more likely to grow at the fastest pace and that human capital is an important determinant for high-growth. Results also point to the fact that fast-growing firms were not hampered by lack of access to adequate external funding during the period, and that they relied primarily on equity to finance their growing needs. Moreover, we find that, once firms’ experience in the market is considered, being an exporter is a relevant factor when it comes to high-growth events. Similarly, the innovative capacity of firms seems to be crucial in outstanding job creation episodes. Finally, our results suggest that it is an enhanced innovative capacity, the availability of equity, as well as the ability of experienced firms to export that might set the difference between the average growth performance and the exceptional growth performance, pointing to nonlinearities in the growth process of firms.

Rising Concentration and Wage Inequality

Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that shocks that increase concentration will also lead to an increase in wage dispersion between firms. Empirically, we use industry-level data from 14 European countries over the period 1999-2016 and show robust evidence of a positive and statis-tically significant correlation between concentration and between-firm wage inequality, driven by increases in market shares and wages in high productivity firms.

Buying Lottery Tickets for Foreign Workers: Search Cost Externalities Induced by H-1b Policy

The H-1B program allows firms in the United States to temporarily hire high-skilled foreign citizens. H-1B workers are highly concentrated among a small number of firms. We develop a theoretical model demonstrating that this phenomenon is an artifact of policy design: When the government restricts foreign labor inflows and allocates H- 1B status by random lottery, it creates a negative externality by incentivizing firms to search for more workers than can actually be hired. Some firms rationally move toward specializing in hiring foreign labor and contracting out those workers' services to third- party sites. This outsourcing behavior further exacerbates total search costs and lottery externalities, resulting in an annual economic loss in the hundreds of millions of dollars.

Merger Waves Through Market Leadership

I present a merger model where a merged entity is assumed to acquire the market leadership from a linear, symmetric, simultaneous, homogeneous good, quantity-setting oligopoly and where efficiency gains are ruled out. If firms cannot merge to monopoly, mergers occur in waves, and for each number of pre-merger firms, I endogenize: (i) the number of mergers in a wave; (ii) the number of firms involved in each merger; and (iii) the order in which the mergers take place. If monopolization is allowed, in the majority of cases, all firms prefer to merge into a single entity. This suggests the strategic nature of merger waves as a response to the prohibition of monopolization. Finally, in sharp contrast with the existing results on horizontal mergers under simultaneous quantity competition without efficiency gains, and in line with empirical findings, profitability is ensured even if mergers involve a small number of firms.