Kox, Henk L.M. and Leeuwen, George van and Wiel, Henry van der (2007): Market structure, productivity and scale in European business services.
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Using data from 11 EU countries, the paper investigates the impact of scale economies on labour productivity in European business services. Moreover, it analyses whether the incidence of scale sub-optimality is related to characteristics of the market or to national regulation characteristics. The econometric analysis is based on a production function model in combination with a distance-to-the-frontier model. We find evidence for the existence of increasing returns to scale in business services firms. A result is that throughout the EU, business-services firms with less than 20 employed persons have a significantly lower level of labour productivity than the rest of the business-services industry. Two factors explain the scale inefficiencies. The first is the level of policy-caused firm-entry costs; higher start-up costs for new firms go along with more scale inefficiency. Secondly, business-services markets tend to be segmented by firm size: firms tend to compete predominantly with firms in their own size segment of the markets. Scale-related inefficiencies are to some extent compensated by more competition within a firm's own size segment. If a firm operates in a more “crowded” segment this has a significant and positive impact on its labour productivity. We derive some policy implications from our findings.
|Item Type:||MPRA Paper|
|Original Title:||Market structure, productivity and scale in European business services|
|Keywords:||EU, business services, scale efficiency, labour productivity, regulation, entry costs|
|Subjects:||L - Industrial Organization > L5 - Regulation and Industrial Policy
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
D - Microeconomics > D2 - Production and Organizations
L - Industrial Organization > L8 - Industry Studies: Services
|Depositing User:||Henk L.M. Kox|
|Date Deposited:||07. Dec 2007 00:23|
|Last Modified:||13. Feb 2013 07:15|
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