Market sizes sometimes shrink following increased competition
Empirical evidence from business demography and market shock studies shows that heightened competition can drive weaker firms out of business, sometimes leading to an overall contraction in the number of active competitors or total market size.
The claim is specific and empirically testable, passing Step 0. Papers [1], [4], and [11] provide relevant empirical evidence where increased competition or market shocks led to higher business closures and market shakeouts, supporting the notion that market sizes or counts can shrink under such conditions. No papers directly refute the claim.
Fairlie R, Fossen FM, Johnsen R, Droboniku G. Were small businesses more likely to permanently close in the pandemic?. 2023. https://doi.org/10.1007/s11187-022-00662-1
Paper [1] demonstrates that intense adverse shocks and competitive pressures can disproportionately eliminate smaller firms, concentrating market share and reducing the number of operating businesses.
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Fairlie RW, Fossen FM, Johnsen R, Droboniku G. Were Small Businesses More Likely to Permanently Close in the Pandemic?. 2022. https://doi.org/10.2139/ssrn.4178921
Paper [4] similarly notes that high closure rates among vulnerable small businesses led to concentrated market structures with fewer active market participants.
Indian telecoms market faces massive shakeout. 2016. https://doi.org/10.1108/oxan-db216010
Paper [11] describes how new market entry and intense competition in the Indian telecoms market triggered a massive shakeout, squeezing margins and reducing the number of viable incumbents.
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