nep-bec New Economics Papers
on Business Economics
Issue of 2023‒10‒02
eleven papers chosen by
Vasileios Bougioukos, London South Bank University

  1. Collusion sustainability with a capacity constrained firm By Leonardo Madio; Aldo Pignataro
  2. Small Businesses and Digital Platforms By Nishant Chadha; Viswanath Pingali; Daniel Sokol
  3. Diversify or Not? – The Link between Global Sourcing of ICT Goods and Firm Performance By Alexander Schiersch; Irene Bertschek; Thomas Niebel
  4. Occupational Choice, Human Capital, and Financial Constraints By Rui Castro; Pavel Sevcik
  5. Spatial Production Networks By Costas Arkolakis; Federico Huneeus; Yuhei Miyauchi
  6. Market transparency in a mixed oligopoly By Xu, Lili; Matsumura, Toshihiro
  7. Business Cycle Asymmetry and Input-Output Structure: The Role of Firm-to-Firm Networks By Jorge Miranda-Pinto; Alvaro Silva; Eric R. Young
  8. The Role of Firms and Job Mobility in the Assimilation of Immigrants: Former Soviet Union Jews in Israel By Arellano-Bover, Jaime; San, Shmuel
  9. AI Watch: Adoption of Autonomous Machines By CARBALLA SMICHOWSKI Bruno; DE NIGRIS Sarah; DUCH BROWN Nestor; MORENO MARÍA Adrián
  10. Small and Medium Enterprises Amidst the Pandemic and Reopening: Digital Edge and Transformation By Lin William Cong; Xiaohan Yang; Xiaobo Zhang
  11. Anatomy of Firms’ Margins of Adjustment: Evidence from the COVID Pandemic By Elías Albagli; Andrés Fernández; Juan Guerra-Salas; Federico Huneeus; Pablo Muñoz

  1. By: Leonardo Madio (University of Padova); Aldo Pignataro (Italian Regulatory Authority for Energy, Networks and Environment)
    Abstract: We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity constrained. We show that collusion sustainability is non-monotonic in the size of the capacity constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed.
    Keywords: Antitrust, capacity constraints, collusion, partial cartel.
    Date: 2022–12
  2. By: Nishant Chadha; Viswanath Pingali; Daniel Sokol
    Abstract: We investigate strategies of small businesses’ usage of digital platforms for advertising and sales. We rely on primary data from a quantitative survey of small business startups, and a few in-depth interviews of small business owners. We find that small firms prefer digital platforms for advertising and sales over conventional methods. As firms grow, while they continue to rely on digital advertising, their preference for conventional advertising (radio, television, etc.) increases. We find a strong correlation between the geographical spread of small firm sales, including exports, and their propensity to use digital platforms. We also find that small businesses multihome on both advertising and sales platforms. Multihoming occurs across established platforms and between established and nascent platforms. Our results enhance the understanding of how small firms rely on platforms and inform the policy debates on platform regulation.
    Date: 2023–09–18
  3. By: Alexander Schiersch; Irene Bertschek; Thomas Niebel
    Abstract: Our paper contributes to the discussion about Europe’s digital sovereignty. We analyze the relationship between firm performance and the diversification of sourcing countries for imported ICT goods. The analysis is based on administrative data for 3888 German manufacturing firms that imported ICT goods in the years 2010 and 2014. We find that firms that diversify the sourcing of ICT goods across multiple countries perform better than similar firms with a less diversified sourcing structure. This result holds for value added as well as for gross operational surplus as performance measures and for two different indicators of diversification.
    Keywords: ICT goods imports, global sourcing, digital sovereignty, firm performance
    JEL: F14 F23 L14 L23 D24
    Date: 2023
  4. By: Rui Castro (McGill University); Pavel Sevcik (University of Quebec in Montreal)
    Abstract: We study the aggregate productivity effects of firm-level financial frictions. Credit constraints affect not only production decisions, but also household level schooling decisions. In turn, entrepreneurial schooling decisions impact firm-level productivities, whose cross-sectional distribution becomes endogenous. In anticipation of future constraints, entrepreneurs under-invest in schooling early in life. Frictions lower aggregate productivity because talent is misallocated across occupations, and capital misallocated across firms. Firm level productivities are also lower due to schooling distortions. These effects combined account for between 36 and 68 percent of the U.S.-India aggregate productivity difference. Schooling distortions are the major source of aggregate productivity differences.
    Keywords: Aggregate Productivity, Financial Frictions, Entrepreneurship, Human Capital, Misallocation
    JEL: E24 I25 J24 O11 O15 O16 O47
    Date: 2023–08
  5. By: Costas Arkolakis; Federico Huneeus; Yuhei Miyauchi
    Abstract: We use new theory and data to study how firms endogenously form production networks across regions and countries. Supplier and buyer relationships form depending on firms’ productivity and geographic location. We characterize the normative and positive properties of the spatial distribution of economic activity and welfare in general equilibrium. We calibrate the model using domestic and international firm-to-firm trade data from Chile. Both iceberg trade costs and search and matching frictions are important for aggregate trade flows and production networks. Endogenous formation of production networks leads to larger and more dispersed effects of international and intranational trade cost shocks.
    Date: 2023–02
  6. By: Xu, Lili; Matsumura, Toshihiro
    Abstract: This study investigates the relationship between market transparency and economic welfare in a mixed duopoly in which a welfare-maximizing public firm competes with a profit-maximizing private firm. We find that the private firm’s market share, consumer surplus, and welfare increase with market transparency. Further, the relationship between the private firm’s profit and market transparency has an inverted U shape. This result suggests that profit-maximizing firms may have incentives to improve market transparency, especially when the degree of market transparency is low, which is in sharp contrast to the results under a private duopoly.
    Keywords: market transparency, mixed oligopoly, product differentiation, unconstrained Hotelling model, profit-enhancing market transparency, crowding out
    JEL: L13 L15 L32 L33
    Date: 2023–08–29
  7. By: Jorge Miranda-Pinto; Alvaro Silva; Eric R. Young
    Abstract: We study the network origins of business cycle asymmetries using cross-country and administrative firmlevel data. At the country level, we document that countries with a larger number of non-zero intersectoral linkages (denser networks) display a more negatively skewed cyclical component of output. At the firm level, we find that firms with a larger number of suppliers and customers (degrees) display a more negatively-skewed distribution of their output growth. To rationalize these findings, we construct a multisector model with input-output linkages and show that the relationship between output skewness and network density naturally arises once we consider non-linearities in production. In an economy with low production flexibility (inputs are gross complements), denser production structures imply that relying on more inputs becomes a risk that further amplifies the effects of negative productivity shocks. The opposite holds if firms display high production flexibility (inputs are gross substitutes): having more inputs to choose from becomes an opportunity to diversify the effects of negative productivity shocks. We calibrate the model using our rich firm-to-firm network Chilean data and show that more connected firms experience larger declines in output in response to a COVID-19 shock, consistent with the data. We also show that, as in the data, the cross-sectional distribution of output growth in the model displays a fatter left tail during downturns. The previous result is shaped by the interplay between production complementarities and network interconnectedness, rather than by the asymmetry of the shocks. The size of the shock determines the strength of the relationship between degrees and output decline, which highlights the importance of non-linearities and the limitations of local approximations.
    Date: 2022–12
  8. By: Arellano-Bover, Jaime (Yale University); San, Shmuel (The Hebrew University of Jerusalem)
    Abstract: We study how job mobility, firms, and firm-ladder climbing can shape immigrants' labor market success. Our context is the migration of former Soviet Union Jews to Israel during the 1990s. This setting presents unique institutional features—including the lack of barriers posed by migration regulations—and rich data availability. Differential sorting across firms and differential pay-setting within firms both explain important shares of immigrant-native wage gap levels and dynamics. Immigrants are persistently more mobile than natives and faster at climbing the firm ladder. We uncover a novel, sizable job utility immigrant-native gap when incorporating non-wage amenities into the analysis.
    Keywords: immigrants, firms, job mobility, firm ladder, assimilation
    JEL: J31 J61 F22
    Date: 2023–08
  9. By: CARBALLA SMICHOWSKI Bruno (European Commission - JRC); DE NIGRIS Sarah (European Commission - JRC); DUCH BROWN Nestor (European Commission - JRC); MORENO MARÍA Adrián
    Abstract: This report provides an empirical analysis of the drivers of and barriers to adoption of autonomous machines (AM) technologies by European companies. It also analyses the impact of adopting this technology on firm productivity. Using 2020 survey data from 9 640 firms located in EU27, Norway, Iceland and the UK, we show that AM adoption is driven by several factors and has heterogeneous effects on companies depending on their characteristics. Regarding the drivers of adoption, we find that firm size, employee knowledge of artificial intelligence (AI) and the joint adoption of AM with complementary technologies increase a firm’s probability of adopting AM. Concerning barriers to adoption, we make three main findings. First, the most relevant barriers (cost of adoption and, to a lesser extent, lack of skills and data access) are different for large firms. For the latter, liability and reputation risks, as well as data access, are the most important obstacles. Second, certain types of obstacles (namely liability and reputation risks, data access and lack of funding) are more likely to be present in certain sectors of activity. Third, the more complementary technologies a firm adopts, the lower its probability of facing obstacles to AM adoption. Finally, we find that AM adoption boosts firm productivity. This effect is higher for firms that start out with lower productivity, which suggests that there is a decreasing marginal return to AM adoption in terms of productivity.
    Date: 2023–08
  10. By: Lin William Cong (Cornell University Johnson Graduate School of Management); Xiaohan Yang (Peking University National School of Development); Xiaobo Zhang (Peking University Guanghua School of Management; International Food Policy Research Institute; Center for Global Development)
    Abstract: Using administrative universal firm registration data as well as primary offline and online surveys of small business owners in China, we examine (i) whether the digitization of business operations helps small and medium enterprises (SMEs) better cope with the pandemic shock, and (ii) if the pandemic has induced digital technology adoption. We identify significant economic benefits of digitization in increasing SMEs’ resilience against such a large shock, as seen through mitigated demand decline, sustainable cash flow, ability to quickly reopen, and positive outlook for growth. After the lockdown in January 2020, firm entries have exhibited a V-shaped pattern, with entries of e-commerce firms experiencing a less pronounced initial drop and a quicker rebound. The COVID-19 pandemic has also accelerated digital technology adoption of existing firms in various dimensions (captured by, e.g., the alteration of operation scope to include e-commerce activities, allowing remote work, and adoption of electronic information system), and the effect persists after one year of full reopening.
    Keywords: SMEs, COVID-19, Digital economy, E-commerce
    Date: 2021–12–10
  11. By: Elías Albagli; Andrés Fernández; Juan Guerra-Salas; Federico Huneeus; Pablo Muñoz
    Abstract: As a response to shocks, firms can adjust through several margins. But typically these margins are studied separately. In this paper, we jointly study firms’ margins of adjustments in output, capital, labor, input markets and productivity by leveraging a rich administrative dataset from Chile. We apply the analysis to the pandemic in the wake of the shock and throughout the economy’s recovery path. Importantly, we also study firms’ access to public policies aimed at supporting credit and protecting employment relations. We document considerable heterogeneity in the adjustment to the pandemic across firm size and industry. We also document widespread and heterogeneous access to the aforementioned policies. A corollary of credit policies is a considerable increase in firms’ leverage.
    Date: 2023–06

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