Firm Growth and Failure in Increasingly Competitive Markets Theory and Application to Hospital Markets |
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| Authors: | Lee Rivers Mobley H E Frech III |
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| Institution: | 1. Assistant Professor of Economics , Oakland University , Rochester, MI, 48309;2. Professor of Economics , University of Santa Barbara , CA, 93106, USA |
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| Abstract: | Recent models of firm failure and growth have ignored demand factors. In this paper, we generalize these theoretical analyses to include demand factors in explaining failure and growth for heterogeneous firms in local markets facing imperfect but increasing competition. The model is then applied empirically to the hospital industry in California over the 1980s, during which time competition did intensify. We model the closure decision based on expectations of future growth, explicitly accounting for self selection and simultaneity. We find that both size and demand factors are important determinants of survival and growth |
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| Keywords: | Closure Growth Survivor analysis Hospitals Scale economies Competition I11 L11 L31 L44 L84 O24 |
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