The Slow Growth of New Plants: Learning about Demand?
March 2012
Working Paper Number:
CES-12-06
Abstract
It is well known that new businesses are typically much smaller than their established industry competitors, and that this size gap closes slowly. We show that even in commodity-like product markets, these patterns do not reflect productivity gaps, but rather differences in demand-side fundamentals. We document and explore patterns in plants' idiosyncratic demand levels by estimating a dynamic model of plant expansion in the presence of a demand accumulation process (e.g., building a customer base). We find active accumulation driven by plants' past production decisions quantitatively dominates passive demand accumulation, and that within-firm spillovers affect demand levels but not growth.
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demand,
estimation,
market,
production,
utilization,
econometric,
endogeneity,
estimating,
sale,
growth,
commodity,
produce,
economically,
revenue,
spillover,
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Bureau of Economic Analysis,
Retirement History Survey,
Michigan Institute for Teaching and Research in Economics,
University of California Los Angeles,
Generalized Method of Moments,
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Commodity Flow Survey
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