The Impact of Market Size on Firm Selection

Author Name KONDO Keisuke (Senior Fellow, RIETI) / OKUBO Toshihiro (Keio University)
Creation Date/NO. May 2020 20-E-053
Research Project An Empirical Study on Compact City: Evaluating place-based policies in Japan
Download / Links


This study analyzes how local market size affects the probabilities of firm exit by focusing on single-establishment firms in the service sector. The novelty of this study is that it identifies geographic ranges of local markets using the matched data of geocoded firm location and micro-geographic data with detailed firm exit information of all Japanese firms. The results reveal that the probability of firm exit increases as local market size increases within a narrow range (3 km radius) in the service sector. We also find that small firms tend to leave the market. Our results suggest that firm selection is stronger in larger markets, where larger firms are more likely to survive.