A recent literature analyzing the dynamics of firms and industries suggests that the contribution of new and small firms to the dynamics of competition is significantly greater than found in a static analysis. Policy makers have responded by implementing a wide range of programs to reduce barriers to new-firm startup. At the same time, a number of European countries have maintained systems of collective agreements imposing industry-wide standards on the deployment and remuneration of inputs, particularly labor. The purpose of this paper is to examine whether the ability to deviate from the industry standards practiced by the incumbent firms promotes the viability of small and new firms. We examine this using a longitudinal data base from the Netherlands, where a system of rigid industry-wide collective agreements was abandoned in favor of greater flexibility. Whether or not the ability of small firms to deviate from the standards and practices of the incumbent firms in the industry promotes their viability in the Dutch context is instructive to other European countries, such as Germany and France. The latter countries have identified the startup of new firms as a central policy goal, but have maintained systems of industry-wide collective agreements. The important finding emerging from this paper is that wage flexibility promotes the viability of small firms and thus can be considered to be an instrument of competition policy in a dynamic context

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doi.org/10.1016/S0167-7187(00)00094-1, hdl.handle.net/1765/15878
ERIM Top-Core Articles
International Journal of Industrial Organization
Erasmus Research Institute of Management

Audretsch, D., van Leeuwen, G., Menkveld, B., & Thurik, R. (2001). Market dynamics in the Netherlands: Competition policy and the role of small firms. International Journal of Industrial Organization, 19(5), 795–821. doi:10.1016/S0167-7187(00)00094-1