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Chad Syverson, Chicago U. Print
Tuesday, 16 April 2013, 14:00 - 15:15

Chad Syverson, Chicago University

The Slow Growth of New Plants: Learning about Demand ?

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.  These results have implications for current work being done in fields as diverse as industrial organization, macro, finance, and trade.

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