Health> Vol.4 No.3, March 2012

Dynamics of firm size in healthcare industry

DownloadDownload as PDF (Size:710KB) Full-Text HTML PP. 155-164   DOI: 10.4236/health.2012.43024

ABSTRACT

Healthcare is one of the world’s fastest growing industries consisting of broad services offered by various hospitals, physicians, nursing homes, diagnostic laboratories, pharmacies and supported by drugs, pharmaceuticals, chemicals, medical equipment, manufacturers and suppliers. The industry is highly fragmented, comprising of various ancillary sectors namely medical equipment and supplies, pharmaceutical, healthcare services, biotechnology, and alternative medicines. The present study focuses on the pharmaceutical and biotechnology segments of the healthcare industry, and presents a stochastic analysis of the evolution over time of firm size. A dynamic model is proposed that attempts to predict the evolutionary process of firm size distribution based on industry and product characteristics. A validation exercise, applying the model to pharmaceutical and the biotechnology industries finds that the predictions from the model are very close to the actual trajectories of firm size distributions within these industries at the global level. The results show interestingly, that the drivers of firm size dynamics are industry level characteristics that can be estimated from historical data with some accuracy. Specifically, it is found that firm size distributions are approaching a long-run equilibrium at a faster rate in the case of the pharmaceutical industry and that the dispersion of the distributions are shrinking over time above all for the biotechnology industry.

KEYWORDS


Cite this paper

Hashemi, F. (2012) Dynamics of firm size in healthcare industry. Health, 4, 155-164. doi: 10.4236/health.2012.43024.

References

[1] Friedman, M. (1992) Do old fallacies ever die? Journal of Economic Literature, 30, 2129-32.
[2] Quah, D. (2003) Empirics for economic growth and convergence. The Economics of Structural Change, Elgar Reference Col-lection, 3, 174-196.
[3] Kevin, L., Pesaran, H. and Smith, R. (1998) Growth empirics: A panel data approach—A comment. Quarterly Journal of Economics, 113, 319-323. doi:10.1162/003355398555504
[4] Arrow, K.J. (1962) The economic implications of learning-by-doing. Review of Economic Studies, 29, 155.
[5] Nelson, R.R. and Winter, S.G. (1982) An evolutionary theory of economic change. Harvard University Press, Cam-bridge.
[6] Levine, D. (2011) Neuroeconomics? International Review of Economics, 58, 287-305. doi:10.1007/s12232-011-0128-7
[7] Gibrat, R. (1931) Les inegalite economiques. Sirey, Paris.
[8] Ijiri, Y. and Simon, H.A. (1977) Interpretations of departures from the pareto curve firm-size distributions. Journal of Political Economy, 82, 315-331.
[9] Jovanovic, B. (1982) Selection and the evolution of industry. Econometrica, 50, 649-670. doi:10.2307/1912606
[10] Simon, H.A. (1997) Models of bounded rationality: empirically grounded economic reason. 3, The MIT Press, Cambridge.
[11] Hopenhayn, H. (1992) Entry, exit, and firm dynamics in long run equilibrium. Econometrica, 60, 1127-1150. doi:10.2307/2951541
[12] Stanley, M.H.R., et al. (1996) Scaling behaviour in the growth of companies. Nature, 319, 804-806.
[13] Sutton, J. (1997) Gibrats legacy. Journal of Economic Literature, 35, 4059.
[14] Axtell, R. (2001) Zipf distribution of US firm sizes. Science, 293, 1818-20. doi:10.1126/science.1062081
[15] Lotti, F. and Santarelli, E. (2004) Industry dynamics and the disrtribution of firm sizes. Southern Economic Journal, 70, 443-66. doi:10.2307/4135325
[16] Klepper, S. and Thompson, P. (2006) Submarkets and the evolution of market structure. Rand Journal of Economics, 37, 861-886. doi:10.1111/j.1756-2171.2006.tb00061.x
[17] Luttmer, E. (2007) Selection, Growth, and the size distribution of firms. Quarterly Journal of Economics, 122, 1103-1144. doi:10.1162/qjec.122.3.1103
[18] Angelini, P. and Generale, A. (2008) On the evolution of firm size distributions. American Economic Review, 98, 426-438. doi:10.1257/aer.98.1.426
[19] Hutchinson, J., Konings, J. and Walsh, P.P. (2010) The firm size distribution and inter-industry diversification. Review of Industrial Organization, 37, 65-82. doi:10.1007/s11151-010-9260-x
[20] Cabral, L. and Mata, J. (2003) On the evolution of the firm size distribution: Facts and theory. American Economic Review,
[21] Pakes, A. and Ericson, R. (1998) Empirical implications of alternative models of firm dynamics. Journal of Economic Theory, 79, 1-45.
[22] Chamberlin, E. (1933) Theory of monopolistic competition. Harvard University Press, Cambridge.
[23] Robinson, J. (1933) The economics of imperfect competition. Macmillan, London.
[24] Spence, M. (1976) Product selection, fixed costs, and monopolistic competition. Review of Economic Studies,
[25] Dixit, A. and Stiglitz, J. (1977) Monopolis-tic competition and optimal product diversity. American Economic Review, 67, 297-308.
[26] Hongler, M.-O., Filliger, R. and Blanchard, P. (2006) Soluble models for dynamics driven by a super-diffusive noise. Physica, 370, 301-315.
[27] Hongler, M.-O., Soner, H. and Streit, L. (2004) Stochastic control for a class of random evolution models. Applied Mathematics and Optimization, 49, 113-121.
[28] Besson, O. and de Montmollin, G. (2004) Space-time integrated least squares: A time-marching ap-proach. International Journal for Numerical Methods in Fluids, 44, 525-543. doi:10.1002/fld.655
[29] Harris, T. (1963) The theory of branching processes. Springer-Verlag, Berlin.
[30] Harris, T. (1974) Contact interactions on a lattice. Annals of Probability, 2, 969-988. doi:10.1214/aop/1176996493
[31] Hashemi, F. (2003) A dynamic model of size distribution of firms applied to U.S. biotechnology and trucking industries. Small Busi-ness Economics, 21, 27-36. doi:10.1023/A:1024433203253
[32] Hashemi, F. (2000) An evolutionary model of the size distribution of firms. Journal of Evolutionary Economics, 10, 507-521. doi:10.1007/s001910000048
[33] Sutton, J. (1998) Technology and market structure: Theory and history. MIT Press, Cambridge.
[34] Alchian, A.A. (1950) Uncertainty, evolution, and economic theory. Journal of Political Economy, 58, 211-221.
[35] Simon, H.A. and Bonini, C.P. (1958) The size distribution of business firms. American Economic Review, 48, 607-617
[36] Hirshleifer, J. (1971) The private and social value of information and the reward to inventive activity. American Economic Review, 61, 561-574.
[37] Boldrin, M. and Levine, D. (2009) A model of discovery. Ameri-can Economic Review, 99, 337-342. doi:10.1257/aer.99.2.337
[38] Boldrin, M. and Levine, D. (2012) What’s intellectual property good for? Revue Economique, Forthcoming.

comments powered by Disqus

Copyright © 2014 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.