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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 384:
Market potential, start-up size and the survival of new firms

Johan Klaesson () and Charlie Karlsson ()

Abstract: Abstract: Many phenomena in the economy are influenced by geography. The size of new firm start-ups vary in many dimensions, among them industry and geography. The purpose of this paper is to explore the determinants of the geographical distribution of the size of new firms. Re¬gional size itself can be expected to influence the size of the new firm. Given that there are fixed costs present in the new firms small and low-density regions will demand a larger size of the new firm. The reason for this is that in small regions the firm may not be able to find customers nearby, but need to sell its produce over some distance. This means that the firm must house capacities to do so and this increases the fixed cost component and hence forces the firm to produce a larger amount of the output. Another possible reason can be found in the availability of producer services. In small regions, the number of producer services is more limited and, hence, force the firms to produce some of these services in-house. Gener¬ally, the overall diversity found in small regions is smaller compared to large re-gions. This means that the variation in goods and services available in the market will be smaller, once again forcing the new firm to do more things within the firm. In addition, it is ex¬pected that there is a relationship between entry rate and the size of the entrants.

Keywords: Entry; Start-up size; Market Potential; Region; Industry; Sweden; (follow links to similar papers)

JEL-Codes: C21; L11; M13; R11; R12; (follow links to similar papers)

20 pages, November 26, 2014

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