Measuring dynamic market selection by persistent scale inefficiencies - applied to EU business services
Year: 2012
Type: report
Abstract: The paper proposes a new way of analysing the efficiency of dynamic market selection, based on the persistence of scale economies. The persistence of scale-related inefficiencies is used as an indicator for the effectiveness of market selection.\nWe use a DEA method to construct the productivity frontier by sub-sector and size class, for business services in 13 EU countries. From this we derive scale economies and their development over time. Our results indicate malfunctioning competitive selection. Between 1999 and 2005 we observe a persistence of scale diseconomies, with scale efficiency falling rather than growing over time. In panel regressions we find the distance to the productivity frontier (within and between size classes) to be significantly explained by regulatory policies that hamper entry and exit dynamics and labour adjustment, and by a lack of import penetration and domestic start-ups. The results suggest that policy reform and more market openness may have positive productivity effects. This holds for business services itself, but also wider, because of business services’ large role in intermediary production inputs.
Authors: Henk L.M. Kox, George van Leeuwen
Language: English
Field: Decision Sciences
Domain: Social Sciences
Open Access status: green
Funder: European Commission
OpenAlex ID: W2104517875