nep-com New Economics Papers
on Industrial Competition
Issue of 2020‒09‒21
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. The Economics of Platforms: A Theory Guide for Competition Policy By Bruno Jullien; Wilfried Sand-Zantman
  2. Restrictions on Privacy and Exploitation in the Digital Economy: A Market Failure Perspective By Nicholas Economides; Ioannis Lianos
  3. Is Real-time Pricing Smart for Consumers? By Boom, Anette; Schwenen, Sebastian
  4. An assessment of Nash equilibria in the airline industry By Alexandra Belova; Philippe Gagnepain; Stéphane Gauthier
  5. Algorithmic Pricing and Competition: Empirical Evidence from the German Retail Gasoline Market By Stephanie Assad; Robert Clark; Daniel Ershov; Lei Xu
  6. Selling Strategic Information in Digital Competitive Markets By David Bounie; Antoine Dubus; Patrick Waelbroeck
  7. The Patent Buyout Price for Human Papilloma Virus (HPV) Vaccine and the Ratio of R&D Costs to the Patent Value By Mario Songane; Volker Grossmann
  8. On the Profitability of Cross-Ownership in Cournot Oligopolies: Stock Sizes Matter By Hassan Benchekroun; Miao Dai; Ngo Van Long
  9. Should environment be a concern for competition policy when firms face environmental liability ? By Eric Langlais; Maxime Charreire
  10. Non-competing Data Intermediaries By Shota Ichihashi
  12. Antitrust policies and profitability in non-tradable sectors By Besley, Timothy; Fontana, Nicola; Limodio, Nicola
  13. Concentration and Competition in Serbian Banking Sector in the Period 2016–2018 By Bukvić, Rajko
  14. Exploiting separability in a multisectoral model of oligopolistic competition By d’ASPREMONT Claude,; DOS SANTOS FERREIRA Rodolphe,
  15. Information Design and Sensitivity to Market Fundamentals By Vaissman Guinsburg, Pedro
  16. Ministererlaubnis für Kartellfälle: Kooperation im Sinne des Gemeinwohls? By Budzinski, Oliver; Stöhr, Annika
  17. Inter-organisational patent opposition network: How companies form adversarial relationships By Tomomi Kito; Nagi Moriya; Junichi Yamanoi
  18. Untangling the complexity of market competition in consumer goods -A complex Hilbert PCA analysis By Makoto Mizuno; Hideaki Aoyama; Yoshi Fujiwara
  19. Consolidation of Providers Into Health Systems Increased Substantially, 2016–18 By Michael F. Furukawa; Laura Kimmey; David J. Jones; Rachel M. Machta; Jing Guo; Eugene C. Rich
  20. Market Power, Inequality, and Financial Instability By Isabel Cairo; Jae W. Sim
  21. Rising Concentration and Wage Inequality By Cortes, Matias; Tschopp, Jeanne

  1. By: Bruno Jullien; Wilfried Sand-Zantman
    Abstract: We propose an analysis of platform competition based on the academic literature with a view towards competition policy. First, we discuss to which extent competition can emerge in digital markets and show which forms it can take. In particular, we underline the role of dynamics, but also of platform differentiation, consumers multi-homing and beliefs to allow competition in platform markets. Second, we analyse competition policy issues and discuss how rules designed for standard markets can perform in two-sided markets. We show that multi-sided externalities create new opportunities for anti-competitive conducts, often related to pricing and contractual imperfections.
    Keywords: networks, platforms, markets, competition policy
    JEL: L13 L41 L86 D82
    Date: 2020
  2. By: Nicholas Economides (Professor of Economics, NYU Stern School of Business, New York, New York 10012); Ioannis Lianos (Professor of Global Competition Law and Public Policy, Faculty of Laws, University College London, and Hellenic Competition Commission)
    Abstract: We discuss how the acquisition of private information by default without compensation by digital platforms such as Google and Facebook creates a market failure and can be grounds for antitrust enforcement. To avoid the market failure, the default in the collection of personal information has to be changed by law to “opt-out.” This would allow the creation of a vibrant market for the sale of users’ personal information to digital platforms. Assuming that all parties are perfectly informed, users are better off in this functioning market and digital platforms are worse off compared to the default opt-in. However, just switching to a default opt-in will not restore competition to the but for world because of the immense market power and bargaining power towards an individual user that digital platforms have acquired. Digital platforms can use this power to reduce the compensation that a user would receive for his/her personal information compared to a competitive world. Additionally, it is likely that the digital platforms are much better informed than the user in this market, and can use this information to disadvantage users in the market for personal information.
    Keywords: personal information; Internet search; Google; Facebook; digital; privacy; restrictions of competition; exploitation; market failure; hold up; merger; abuse of a dominant position; unfair commercial practices; excessive data extraction; self-determination; behavioral manipulation; remedies; portability; opt-in; opt-out.
    JEL: K21 L1 L12 L4 L41 L5 L86 L88
    Date: 2020–09
  3. By: Boom, Anette (Department of Economics, Copenhagen Business School); Schwenen, Sebastian (Technical University of Munich, School of Management, and DIW Berlin (Germany))
    Abstract: We examine the effects of real-time pricing on welfare and consumer surplus in electricity markets. We model consumers on real-time pricing who purchase electricity on the wholesale market. A second group of consumers contracts with retailers and pays time-invariant retail prices. Electricity generating firms compete in supply functions. Increasing the number of consumers on real-time pricing increases welfare and consumer surplus of both types of consumers. Yet, risk averse consumers on traditional time-invariant retail prices are always better off. Collectively, our results point to a public good nature of demand response in power markets when consumers are risk-averse.
    Keywords: Electricity; Real-time pricing; Market power; Efficiency
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2020–07–01
  4. By: Alexandra Belova (ECOPSY Consulting); Philippe Gagnepain (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Stéphane Gauthier (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Institute for Fiscal Studies)
    Abstract: We study competition in the U.S. airline industry relaxing the Nash equilibrium assumption that airlines are able to predict perfectly the behavior of their competitors. We assess empirically whether an equilibrium is more likely to occur if it is the unique rationalizable outcome. We find that equilibria of short distance routes with high traffic and low concentration are the most fragile, and low-cost companies appear detrimental to their occurrence. Our analysis is applied to the measurement of welfare gains from firms' entry, and to the characterization of the relevant market when some products are unobserved.
    Keywords: Rationalizability,Nash equilibrium,Cournot competition,structural model,airline industry,welfare analysis,relevant market
    Date: 2020–09
  5. By: Stephanie Assad; Robert Clark; Daniel Ershov; Lei Xu
    Abstract: Economic theory provides ambiguous and conflicting predictions about the association between algorithmic pricing and competition. In this paper we provide the first empirical analysis of this relationship. We study Germany’s retail gasoline market where algorithmic-pricing software became widely available by mid-2017, and for which we have access to comprehensive, high-frequency price data. Because adoption dates are unknown, we identify gas stations that adopt algorithmic-pricing software by testing for structural breaks in markers associated with algo-rithmic pricing. We find a large number of station-level structural breaks around the suspected time of large-scale adoption. Using this information we investigate the impact of adoption on outcomes linked to competition. Because station-level adoption is endogenous, we use brand headquarter-level adoption decisions as instruments. Our IV results show that adoption in-creases margins by 9%, but only in non-monopoly markets. Restricting attention to duopoly markets, we find that market-level margins do not change when only one of the two stations adopts, but increase by 28% in markets where both do. These results suggest that AI adoption has a significant effect on competition.
    Keywords: artificial intelligence, pricing-algorithms, collusion, retail gasoline
    JEL: L41 L13 D43 D83 L71
    Date: 2020
  6. By: David Bounie (Télécom ParisTech); Antoine Dubus (Télécom ParisTech); Patrick Waelbroeck (Ecole Nationale Supérieure des Télécommunications de Bretagne)
    Abstract: This article investigates the strategies of a data broker selling information to one or to two competing firms. The data broker combines segments of the consumer demand that allow firms to third-degree price discriminate consumers. We show that the data broker (1) sells information on consumers with the highest willingness to pay; (2) keeps consumers with low willingness to pay unidentified. The data broker strategically chooses to withhold information on consumer demand to soften competition between firms. These results hold under first degree price discrimination, which is a limit case when information is perfect.
    Keywords: Data broker,Information Structure,Price-discrimination
    Date: 2020
  7. By: Mario Songane; Volker Grossmann
    Abstract: Human papillomavirus (HPV) is responsible for almost all of the 570,000 new cases of cervical cancer and approximately 311,000 deaths per year. HPV vaccination is an integral component of the World Health Organization’s (WHO) global strategy to fight the disease. However, high vaccine prices enforced through patent protection are limiting vaccine expansion, particularly in low- and middle-income countries. By limiting market power, patent buyouts could reduce vaccine prices and raise HPV vaccination rates while keeping innovation incentives. We estimate the global patent buyout price as the present discounted value (PDV) of the future profit stream over the remaining patent length for Merck’s HPV vaccines (Gardasil-4 and 9), which hold 87% of the global HPV vaccine market, in the range of US$ 15.6–27.7 billion (in 2018 US$). The estimated PDV of the profit stream since market introduction amounts to US$ 17.8–42.8 billion and the estimated R&D cost to US$ 1.05–1.21 billion. Thus, we arrive at a ratio of R&D costs to the patent value of the order of 2.5–6.8%. We relate this figure to typical estimates of the probability of success (POS) for clinical trials of vaccines to discuss if patent protection provides Merck with extraordinarily strong price setting power.
    Keywords: Human Papilloma Virus (HPV) vaccine, market power, patent buyout price, patent value, R&D costs
    JEL: I18 L12 L65
    Date: 2020
  8. By: Hassan Benchekroun; Miao Dai; Ngo Van Long
    Abstract: We examine the profitability of cross-ownership in an oligopolistic industry where firms compete as Cournot rivals. We consider a symmetric cross-ownership structure in which a subset of k firms engage in cross-shareholding and each firm has an equal silent financial interest in the other firms, while the remaining (n – k) firms stay independent. We show that a symmetric cross-ownership is never profitable for any levels of non-controlling minority shareholdings if the participation ratio (k/n) is less than or equal to (n+1)/(2n), while there exists a large range of cross-ownership for which it can be profitable beyond that participation ratio. This result may be called a cross-ownership paradox, analogous to the merger paradox. With the presence of stock constraints, however, we find some of the results from the cross-ownership paradox do not carry over to the case of non-renewable resource industries. The profitability of a symmetric cross-ownership can be positive even when the participation ratio (k/n) is less than or equal to (n+1)/(2n) and is always positive when the participation ratio (k/n) is greater than (n+1)/(2n), provided that the initial resource stock owned by each firm is small enough. We also highlight that cross-ownership can be preferable to a horizontal merger under Cournot competition. Not only is it more profitable to do so, more importantly, it constitutes a shrewd strategy to avoid possible legal challenges.
    Keywords: cross-ownership, profitability, oligopoly, shareholding, non-renewable resources, resource stock, horizontal merger, competition policy, antitrust
    JEL: L13 L41 Q30
    Date: 2020
  9. By: Eric Langlais; Maxime Charreire
    Abstract: This paper considers an oligopoly where firms produce a joint and indivisible environmental harm as a by-product of their output. We first analyze the effects on the oligopoly equilibrium of alternative designs in environmental liability law, secondly, we discuss the rationale for "non-conventional" competition policies, i.e. more concerned with public interest such as the preservation of human health or environment. We study firms decisions of care and output under various liability regimes (strict liability vs negligence) associated with alternative damages apportionment rules (per capita vs market share rule), and with damages multipliers. We find that basing an environmental liability law on the combination of strict liability, the per capita rule, and an "optimal" damages multiplier, is consistent with a conservative competition policy, focused on consumers surplus, since, weakening firms' market power also increases aggregate expenditures in environment preservation and social welfare. In contrast, a shift to the market share rule, or to a negligence regime, may be consistent with a restriction of competition, since firms' entry may instead lead to a decrease in aggregate environmental expenditures and losses of social welfare. Nevertheless the fine tuning of the policy requires specific information from a Competition Authority, which we discuss as well.
    Keywords: Strict liability; negligence; damages apportionment rules; market share liability; environmental liability; Cournot oligopoly; competition policy.
    JEL: L41 L13 K13
    Date: 2020
  10. By: Shota Ichihashi
    Abstract: I study a model of competing data intermediaries (e.g., online platforms and data brokers) that collect personal data from consumers and sell it to downstream firms. Competition in this market has a limited impact in terms of benefits to consumers: If intermediaries offer high compensation for their data, then consumers may share this data with multiple intermediaries, and this lowers its downstream price and hurts intermediaries. As intermediaries anticipate this problem, they offer low compensation for this data. Competing intermediaries can earn a monopoly profit if and only if firms’ data acquisition unambiguously hurts consumers. I generalize the results to include arbitrary consumer preferences and study the information design of data intermediaries. The results provide new insights into when competition among data intermediaries benefits consumers. It also highlights the limits of competition in terms of improving efficiency in the market for data.
    Keywords: Economic models
    JEL: D80 L12
    Date: 2020–07
  11. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique); Ayana Lamatkhanova
    Abstract: The paper explores the effect of competition on prices and frequencies for the Interurban rail market in Europe. Intramodal competition is assessed by the Herfindahl-Hirschman Index (HHI). Intermodal competition takes into account new types of service such as coach and carpooling services. The originality of the analysis stems from the method and database used. The results show that intra-modal competition has a significant impact on frequencies but not on economy class prices because of oligopolistic organizations (duopoly). In addition, the effects of intermodal competition are limited mainly because of considerable differences between services in terms of travel time, comfort and users' preferences.
    Keywords: Direct competition,Railway competition,Herfindhal-Hirschman index,Oligopolistic market,Regulation approach
    Date: 2020–09–04
  12. By: Besley, Timothy; Fontana, Nicola; Limodio, Nicola
    Abstract: Firms in tradable sectors are more likely to be subject to external competition to limit market power while non-tradable firms are more dependent on domestic policies and institutions. This paper combines an antitrust index available for multiple countries with firm-level data from Orbis covering more than 10 million firms from 90 countries, covering 20 sectors over 10 years and finds that profit margins of firms operating in non-tradable sectors are significantly lower in countries with stronger antitrust policies compared to firms operating in tradable sectors. The results are robust to a wide variety of empirical specifications.
    Keywords: competition; antitrust; institutions; forthcoming
    JEL: F3 G3 J1
    Date: 2020–09–04
  13. By: Bukvić, Rajko
    Abstract: The paper deals with the analysis of the degree of concentration and competition in Serbian banking sector in the period 2016–2018. The analyses are based on the data of bank financial statements for relevant years, as well the results of other researchers and reports of the National Bank of Serbia. It was used the traditional concentration indicators (CRn and HH indices), as well as the Gini coefficients and not only in Serbia the relatively rarely used Linda indices. The concentration degree in all cases is calculated based on five variables: total assets, deposits, capital, bank operating income and loans. Although these variables are highly correlated, the results show relative important differences. In the case of such variable as capital, the Linda indices suggested the existence of the oligopoly structure. As conclusion, it was demonstrated that in the case of the relatively large number of banks in Serbia, the existing concentration degree is generally moderate low, which provides suitable conditions for the development of healthy competition among them.
    Keywords: concentration, competition, banking sector, SCP paradigm, Serbia, indices Linda, Gini coefficient, Herfindahl-Hirschman index, Lorenz curve, concentration ratio, oligopoly
    JEL: C38 G21 L0
    Date: 2020
  14. By: d’ASPREMONT Claude, (Université catholique de Louvain, CORE, Belgium); DOS SANTOS FERREIRA Rodolphe, (BETA, Université de Strasbourg)
    Abstract: The paper uses the most general version of a Dixit-Stiglitz economy and the concept of oligopolistic equilibrium, defined in previous work, with firms maximizing profits in prices and quantities under a market share and a market size constraint. The purpose here is to take even more advantage of separability so as to partition the oligopolistic sector into groups. Weak separability simplifies quantity conjectures and homothetic separability simplifies price conjectures. Oligopolistic equilibria can in addition be approximated by introducing group expenditure conjectures. Finally, the way different groups interact within the same industry is illustrated within the same framework.
    Keywords: oligopolistic competition, multisector economies, aggregation of price and quantity conjectures
    JEL: D43 D51 L13
    Date: 2020–02–11
  15. By: Vaissman Guinsburg, Pedro
    Abstract: I study the problem of firms that disclose verifiable information to each other publicly, in the form of Blackwell Experiments, before engaging in strategic decisions. The signals designed can be either interpreted as statistical reports or as slices of physical quantities, i.e. market segments. Before the state of the world is realized, firms choose a signal policy, an estimation technique, about a private individual payoff state and then are forced to publicize the results of the investigations to all other firms before engaging in price or quantity competition. Because signals are made public, when a firm tries to assess the firm's individual payoff, it also ends up revealing the same information to her opponents. Full Disclosure enables companies to adapt to local market fundamentals at the expense of releasing crucial information to the competitors. On the other hand, Partial Revelation makes companies loose optimality of the decisions with regards to the true state of the world but enable them to commit to an aggressive policy of preclusion that increases the frequency of a favorable distribution of players actions. Whereas Partial Revelation acts as a commitment device and preclude entry in otherwise competitive markets, inducing insensitivity of the decisions with respect to local fundamentals, decentralized decision making is a dominant strategy when the profile of competitors is constant across markets or when a company cannot influence the extensive margin entry decision of the competitor with more or less disclosure of information. Since decentralization acts as a way to correlate decisions with local market fundamentals, and running one single policy in multiple states of the world acts as a commitment device to avoid competitors, I describe a trade off between commitment over a distribution of actions versus correlation with states of the world.
    Keywords: Information Design, Oligopoly and Market Power
    JEL: D43 D89
    Date: 2020–05–31
  16. By: Budzinski, Oliver; Stöhr, Annika
    Abstract: Mit der Umsetzung der 7. Novelle des Gesetzes gegen Wettbewerbsbe-schränkungen (GWB) wurde im Jahr 2005 die Ausnahmeregelung des sog. Ministerkartells nach § 8 GWB ersatzlos gestrichen. Ähnlich dem noch bestehenden Instrument der Ministererlaubnis für Fusionen nach § 42 GWB konnte bis dahin der amtierende Bundeswirtschaftsminister aus "überwiegenden Gründen der Gesamtwirtschaft und des Gemeinwohls" (§ 8 (1) GWB) sowie bei unmittelbarer "Gefahr für den Bestand des überwiegenden Teils der Unternehmen eines Wirtschaftszweigs" (§ 8 (2) 1 GWB) eine Ausnahme vom Kartellverbot nach § 1 GWB aussprechen. Im vorliegenden Beitrag werden zunächst die Ausgestaltung und die ökonomische Sinnhaftigkeit des Instrumentes an sich beleuchtet. Dabei wird insbesondere auf potenzielle Gemeinwohlgründe eingegangen, welche in der aktuellen wissenschaftlichen und politischen Diskussion im Vordergrund stehen: Umwelt- und Tierschutz, sowie die Bildung und Unterstützung von sog. National Champion Unternehmen. Abschließend wird ein Vergleich der Instrumente Ministerkartell und Ministererlaubnis für Fusionen vorgenommen, welcher zeigt, dass ein ministererlaubtes Kartell häufig weniger starke negative Wettbewerbswirkungen hätte, als eine irreversible Fusion. Aus ökonomischer Sicht wäre somit ein Ersatz des vieldiskutierten Instrumentes Ministererlaubnis nach § 42 GWB durch eine Regelung zur Ausnahmeerlaubnis von Kartellen zu erwägen. Allerdings würde jedes derartige Instrument erheblicher Absicherungen gegen eine ungeeignete oder missbräuchliche Anwendung bedürfen, ohne welche ein Verzicht die bessere Lösung darstellt.
    Keywords: Ministererlaubnis,Ministerkartell,Wettbewerbspolitik,Fusionskontrolle,Kartellverbot,Wettbewerbsökonomik,Antitrust,Recht & Ökonomik,Wettbewerbsordnung,Wirtschaftspolitik,competition policy,cartels,merger control,antitrust,law & economics,German competition policy,public interest
    JEL: L40 K21 B52 L51
    Date: 2020
  17. By: Tomomi Kito; Nagi Moriya; Junichi Yamanoi
    Abstract: Much of the research on networks using patent data focuses on citations and the collaboration networks of inventors, hence regarding patents as a positive sign of invention. However, patenting is, most importantly, a strategic action used by companies to compete with each other. This study sheds light on inter-organisational adversarial relationships in patenting for the first time. We constructed and analysed the network of companies connected via patent opposition relationships that occurred between 1980 and 2018. A majority of the companies are directly or indirectly connected to each other and hence form the largest connected component. We found that in the network, many companies disapprove patents in various industrial sectors as well as those owned by foreign companies. The network exhibits heavy-tailed, power-law-like degree distribution and assortative mixing, making it an unusual type of topology. We further investigated the dynamics of the formation of this network by conducting a temporal network motif analysis, with patent co-ownership among the companies considered. By regarding opposition as a negative relationship and patent co-ownership as a positive relationship, we analysed where collaboration may occur in the opposition network and how such positive relationships would interact with negative relationships. The results identified the structurally imbalanced triadic motifs and the temporal patterns of the occurrence of triads formed by a mixture of positive and negative relationships. Our findings suggest that the mechanisms of the emergence of the inter-organisational adversarial relationships may differ from those of other types of negative relationships hence necessitating further research.
    Date: 2020–09
  18. By: Makoto Mizuno; Hideaki Aoyama; Yoshi Fujiwara
    Abstract: Today's consumer goods markets are rapidly evolving with significant growth in the number of information media as well as the number of competitive products. In this environment, obtaining a quantitative grasp of heterogeneous interactions of firms and customers, which have attracted interest of management scientists and economists, requires the analysis of extremely high-dimensional data. Existing approaches in quantitative research could not handle such data without any reliable prior knowledge nor strong assumptions. Alternatively, we propose a novel method called complex Hilbert principal component analysis (CHPCA) and construct a synchronization network using Hodge decomposition. CHPCA enables us to extract significant comovements with a time lead/delay in the data, and Hodge decomposition is useful for identifying the time-structure of correlations. We apply this method to the Japanese beer market data and reveal comovement of variables related to the consumer choice process across multiple products. Furthermore, we find remarkable customer heterogeneity by calculating the coordinates of each customer in the space derived from the results of CHPCA. Lastly, we discuss the policy and managerial implications, limitations, and further development of the proposed method.
    Date: 2020–08
  19. By: Michael F. Furukawa; Laura Kimmey; David J. Jones; Rachel M. Machta; Jing Guo; Eugene C. Rich
    Abstract: We found substantial consolidation of physicians and hospitals into vertically integrated health systems from 2016 to 2018. The share of physicians affiliated with health systems increased from 40 percent to 51 percent in just two years.
    Keywords: Health systems, hospitals, consolidation, primary care, hospital-physician integration, systems of care
  20. By: Isabel Cairo; Jae W. Sim
    Abstract: Over the last four decades, the U.S. economy has experienced a few secular trends, each of which may be considered undesirable in some aspects: declining labor share; rising profit share; rising income and wealth inequalities; and rising household sector leverage and associated financial instability. We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends. We derive macroprudential policy implications for financial stability.
    Keywords: Market power; Factor shares; Income inequality; Financial instability
    JEL: E21 E25 G01
    Date: 2020–08–07
  21. By: Cortes, Matias (York University, Canada); Tschopp, Jeanne (University of Bern)
    Abstract: Wage inequality has risen in many countries over recent decades. At the same time, production has become increasingly concentrated in a small number of firms. In this paper, we show that these two phenomena are linked. Theoretically, we show that shocks that increase concentration will also lead to an increase in wage dispersion between firms. Empirically, we use industry-level data from 14 European countries over the period 1999-2016 and show robust evidence of a positive and statis-tically significant correlation between concentration and between-firm wage inequality, driven by increases in market shares and wages in high productivity firms.
    Keywords: wage inequality, market power, heterogeneous firms, Europe
    JEL: J31 L11 E24
    Date: 2020–07

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