Campbell, Jeffrey R. <br/><br/>
Competition in Large Markets / 
Jeffrey R. Campbell. 
 - Cambridge, Mass.  National Bureau of Economic Research  2005. 
 - 1 online resource:  illustrations (black and white); 
 - NBER working paper series  no. w11847 .
 - Working Paper Series (National Bureau of Economic Research)  no. w11847. .
<br/><br/> December 2005. 
<br/><br/> This paper develops a simple and robust implication of free entry followed by competition without substantial strategic interactions: Increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. Hence, examining the relationship between market size and producers' actions provides a nonparametric tool for empirically discriminating between these distinct approaches to competition. To illustrate its application, I examine observations of restaurants' seating capacities, exit decisions, and prices from 224 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' capacities, decreases their exit rate, and decreases their prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover. 
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