A Microeconometric Model of Firm Turnover

Abstract

To date, most studies of firm concentration have considered local markets and as a consequence they have exploited market size as a key determinant of the number of firms. We consider instead the case of intermediate goods producers, specifically agro-food processors, whose markets may be regional, national, or even international. For such firms the extent of their markets is indeterminate. However, changes in the size of their markets are likely slowly evolving—thus suggesting that changes in firm counts can condition out demand effects. This study proposes a new estimator for the analysis of firm level turnover that employs changes in firm counts over a period of observation. The empirical model has several attractive features: it can be applied to secondary data on firm numbers, it can accommodate differenced integers, it can produce expected levels of entry and exit in a particular market, and it can be extended to a multivariate system. An application to modeling changes in numbers of dairy processors in four regions of western France suggests the merit of the econometric approach.