Demand Fluctuations in the Ready-Mix Concrete Industry

Authors

  • Allan Collard-Wexler

    1. Stern School of Business, New York University, New York, NY 10012, U.S.A.; wexler@stern.nyu.edu
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    • The work in this paper is drawn from chapter 2 of my Ph.D. dissertation at Northwestern University under the supervision of Mike Whinston, Rob Porter, Shane Greenstein, and Aviv Nevo. I would like to thank the anonymous referees for comments that greatly improved the paper, as well as John Asker, Lanier Benkard, Ambarish Chandra, Alessandro Gavazza, Mike Mazzeo, Ariel Pakes, Lynn Riggs, and Stan Zin for helpful conversations. The Fonds Québécois de la Recherche sur la Société et la Culture (FQRSC) and the Center for the Study of Industrial Organization at Northwestern University (CSIO) provided financial support. I would like to thank seminar participants at many institutions for comments. The research in this paper was conducted while I was a Special Sworn Status researcher of the U.S. Census Bureau at the Chicago Census Research Data Center. Research results and conclusions expressed are those of the author and do not necessarily reflect the views of the Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Support for this research at the Chicago and New York RDC from NSF Awards SES-0004335 and ITR-0427889 is also gratefully acknowledged.


Abstract

I investigate the role of demand shocks in the ready-mix concrete industry. Using Census data on more than 15,000 plants, I estimate a model of investment and entry in oligopolistic markets. These estimates are used to simulate the effect of eliminating short-term local demand changes. A policy of smoothing the volatility of demand has a market expansion effect: The model predicts a 39% increase in the number of plants in the industry. Since bigger markets have both more plants and larger plants, a demand-smoothing fiscal policy would increase the share of large plants by 20%. Finally, the policy of smoothing demand reduces entry and exit by 25%, but has no effect on the rate at which firms change their size.

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