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Understanding Business Dynamics: An Integrated Data System for America’s Future
teristics needed to identify a business unit operating in a product market. For one, the ownership structure of the assets owned by a firm must be transparent in the data. That is, the ownership links between the parent company and owned assets, such as establishments, subsidiaries, and lines of business, must be clearly identified. This is necessary in order to determine the number of distinct decision makers in the market. For example, a firm may operate two individual establishments that produce for the same market. Under the product market definition proposed above, one would not want to count such establishments as two independent business units if they are under common ownership. Therefore, each business unit must be identified with the parent firm that owns the unit.
In addition to information on ownership structure, it is important to be able to identify the products and services produced by each firm. Traditionally, this need has been addressed by focusing on identifying industries of operation, enumerating products produced, defining classes of customers, or providing information on the selling format. Across sectors of the economy, different information is required in order to classify the economic activity of producers, as well as to identify the market they sell in. The information required from a retailer is different from that required from a manufacturer. For many sectors of the economy, the location of production is central to defining markets and thus business units, as well. Retail, service, construction, and even manufacturing firms often sell in local markets. For firms in national markets, knowing where they produce may not be critical to defining the business unit; however, it may be important for understanding the impact of the business unit on local input markets (e.g., labor markets). Finally, along with identifying the activities that a producer undertakes, a measure of the economic importance of the activity is required. Shipments, revenues, or sales volumes are likely candidates, although such information is less readily available at the establishment level than it is for employment and payroll.
2.2.1 Producer Dynamics
The ability to measure the entry and exit of market participants, along with changes in the performance of incumbent producers, is fundamental to understanding how markets evolve. Again, our definitions are centered on participation in a product market. An entrant is defined generally as a firm that is producing in a market in the current period (quarter or year) that was not producing in the market in the prior period. An exit is similarly defined as a firm that was producing in a market in the prior period but that is not producing in the market in the current period. For many purposes, one would ideally like as high-frequency data on market entry and exit as possible, perhaps quarterly or, at a minimum, annually. However, it must