Small Business Enterprise: An Economic Analysis.

• Author: Goering, Gregory E.

The role of small business in modern industrialized economies has attracted a great deal of attention in recent years, particularly in light of the high failure rate of new firms. Gavin Reid provides a comprehensive industrial organization based analysis of this important issue. His book analyzes small business enterprise with particular emphasis on the firms' formative stages. A variety of interesting topics ranging from scale economies to the strategic pricing techniques employed are examined. The book is divided into six major sections, each section highlights a different aspect of small business enterprise and the appropriate research tool and data required for analysis.

The first section contains an introductory chapter, which highlights the growing importance of small business enterprise in industrialized economies, and a second chapter which outlines the extensive small business database (over 40,000 data points) used throughout the book. Unlike many areas of economics, data on small business enterprise is not often readily available in usable form. The very nature of small business enterprise frequently forces a researcher to collect primary data. Hence one of more appealing features of the book is the use of this small business database and the author's careful documentation of the associated interviewing instruments and questionnaires in the appendix. The data base is also of interest because it is "relational." Relational databases use a non-hierarchical data structure and can include qualitative as well as quantitative data. Moreover, relational databases impose few restrictions on the data structure which allow analysts more freedom in exploring hidden relationships.

The second section of the book, comprised of chapters 3, 4, and 5, contains the basic statistical analysis of small business. Chapter 3 provides a brief look at the "typical" small business enterprise in terms of its fundamental characteristics. This sets the stage for the more rigorous statistical analysis applied in subsequent chapters. For example, chapter 4 analyzes both static and dynamic economies of scale. Interestingly, although the evidence for dynamic increasing returns is weak, Reid finds strong support for short-run economies up to capacity. This suggests that even relatively small firms may be able to exert market power due to significant cost barriers to entry.

It should be noted, however, that the dynamic economies examined here were not...