Abstract
This paper provides an analytical framework to investigate the structure of local service markets with entry barriers, and to assess the viability of the local markets. Except in the short run, both market structure and service quality are endogenous; both depend on basic ingredients, such as technology of R & D, demand conditions, natures of factor markets, knowledge accessibility and basic functions of local human networks. In our markets of non-daily consumed services, services are supposed to be horizontally differentiated per se; firms are assumed to maximize their collusive profits. A theoretical model is presented to explain the relationships between market structure and market environment. Two measures, IUs (Indirect Utility Indices) and NNEs (Normalized numbers of entrants), are proposed to investigate the market viability. An empirical research is also carried out to illustrate the applicability of our indices.
