Scandinavian Working Papers in Economics

HUI Working Papers,
HUI Research

No 81: Entry in the Swedish Wholesale Trade Sector: Does Market Definition Matter?

Daniel Brandt , Zuzana Macuchova () and Niklas Rudholm ()
Additional contact information
Daniel Brandt: Dalarna University, Postal: SE- 791 88 , Falun, Sweden
Zuzana Macuchova: Dalarna University, Postal: SE- 791 88 , Falun, Sweden
Niklas Rudholm: The Swedish Research Institute of Trade (HUI), Postal: The Swedish Research Institute of Trade (HUI), Regeringsgatan 60, 103 29 Stockholm, Sweden, and Dalarna University, SE- 791 88 , Falun, Sweden

Abstract: Entry of firms into local markets has often been studied using administrative areas such as municipalities as the assumed relevant markets to study. However, administrative areas and the actual relevant markets based on local demand for firms’ products often need not coincide, which could bias the results of studies treating administrative areas as the relevant markets. Based on a behavioural assumption regarding how retailers act when purchasing products from wholesale trade firms, we create alternative markets using Voronoi diagrams. We then compare the empirical results of investigating the determinants of entry using municipalities as the relevant markets with the results obtained using the Voronoi markets. The results indicate that, in both cases, the same variables are statistically significant in affecting entry, though the estimated effects differ in size.

Keywords: Firm entry; market delineation; entrepreneurship; regional economics; count data

JEL-codes: L13; L81; R12

22 pages, March 15, 2013

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