UNSPECIFIED (1995) COST OF CAPITAL AND MARKET POWER - THE EFFECT OF SIZE DISPERSION AND ENTRY BARRIERS ON MARKET EQUILIBRIUM. SMALL BUSINESS ECONOMICS, 7 (3). pp. 205-212. ISSN 0921-898X

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Abstract

A market power explanation for the observed empirical fact that large firms in a given industry pay less for their capital than small is developed. Larger firms in an industry are shown to pay less for their capital than small because they have more control over the market and the riskiness of their divided stream is correspondingly smaller. More firms in an industry with a given size dispersion raises the cost of capital to the incumbents, but proportionately more to smaller firms. However, the most significant result is that a greater dispersion of sizes will reduce the riskiness of the dividend stream of the larger firm and increase the riskiness of the smaller firm, causing an increase in the dispersion of capital costs. Hence product market power enhances capital cost efficiencies.

Item Type:	Journal Article
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Journal or Publication Title:	SMALL BUSINESS ECONOMICS
Publisher:	KLUWER ACADEMIC PUBL
ISSN:	0921-898X
Date:	June 1995
Volume:	7
Number:	3
Number of Pages:	8
Page Range:	pp. 205-212
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/19775

Data sourced from Thomson Reuters' Web of Knowledge

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