nep-com New Economics Papers
on Industrial Competition
Issue of 2022‒10‒24
23 papers chosen by
Russell Pittman
United States Department of Justice

  1. Cournot–Bertrand comparison under common ownership in a mixed oligopoly By Xu, Lili; Zhang, Yidan; Matsumura, Toshihiro
  2. Foreclosure and tunneling with partial vertical ownership By Hunold, Matthias; Petrishcheva, Vasilisa
  3. M&A and Early Investment Decisions by Digital Platforms By Zelda Brutti; Luis Rojas
  4. The Use of Scanner Data for Economics Research By Pierre Dubois; Rachel Griffith; Martin O'Connell
  5. Are Managers Paid for Market Power? By Renjie Bao; Jan de Loecker; Jan Eeckhout
  6. Competition for Loyal Customers By Alexander Usvitskiy; Dmitry Ryvkin
  7. Market Size and Number of Firms with New Technology By Sugata Marjit; Krishnendu Ghosh Dastidar; Gouranga Gopal Das
  8. Market Power and Wage Inequality By Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
  9. What Drives Wage Stagnation: Monopsony or Monopoly? By Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
  10. The Growth of Firms, Markets and Rents: Evidence from China By Daniel Berkowitz; Shuichiro Nishioka
  11. Goodbye monopoly: the effect of open access passenger rail competition on price and frequency in France on the High-Speed Paris-Lyon Line By Florent Laroche
  12. Exploring effects of competitive tender for users in the regional railway market: evidence from Europe By Florent Laroche; Ayana Lamatkhanova
  13. Creditor Rights and Bank Competition By Thiago Christiano Silva; Dimas Mateus Fazio
  14. Should organizing premier-level European football be a monopoly? And who should run it? - An economists' perspective By Budzinski, Oliver; Feddersen, Arne
  15. The Sociology of Cartels By Justus Haucap; Christina Heldman
  16. Hat die oekonomische Macht von Unternehmen in Oesterreich zugenommen? By Christian Reiner; Christian Bellak
  17. Пет сила vs Дуги реп By Bukvić, Rajko
  18. Типови промена концентрације у банковном сектору Србије: декомпозиција индекса Хиршмана-Херфиндала By Bukvić, Rajko
  19. Влияние конкурентной среды на ценообразование // The impact of the competitive environment on pricing By Дускалиева Сауле // Duskaliyeva Saule; Галимова Агия // Galimova Agiya; Жанабеков Сарсен // Zhanabekov Sarsen
  20. Trade-ins and Transaction Costs in the Market for Used Business Jets By Charles Hodgson
  21. Fixing Markets, Not Prices By World Bank
  22. Rising Markups or Changing Technology? By Lucia S. Foster; John C. Haltiwanger; Cody Tuttle
  23. Fishing in muddy waters: Mergers and acquisitions during uncertainty By Gopalakrishnan, Balagopal; Jacob, Joshy; Srivastava, Jagriti

  1. By: Xu, Lili; Zhang, Yidan; Matsumura, Toshihiro
    Abstract: Price competition is more intense than quantity competition in private oligopolies, wherein all firms are profit maximizers. However, in mixed oligopolies where one state-owned public firm competes with profit-maximizing private firms, price competition may not provide tougher competition than quantity competition. In this study, we introduce common ownership, a distinct feature of recent financial markets, into a mixed oligopoly model and investigate how common ownership affects this ranking. We find that under common ownership, quantity competition is likely to be tougher than price competition. Moreover, we find that common ownership harms welfare regardless of competition mode. Common ownership enhances private firms’ profits under Bertrand competition while these may decline under Cournot competition.
    Keywords: Cournot model; Bertrand model; common ownership; mixed oligopoly
    JEL: D4 D43 H42 L13
    Date: 2022–09–20
  2. By: Hunold, Matthias; Petrishcheva, Vasilisa
    Abstract: We study the incentives of firms that hold partial vertical ownership to foreclose rivals. Compared to a full vertical merger, with partial ownership, a firm may obtain only part of the target's profit but may nevertheless be able to influence the target's strategy significantly. The target may be either a supplier or a customer, which opens the scope for either input foreclosure or customer foreclosure. We show that the incentives to foreclose can be higher, equal, or even lower with partial ownership than with a vertical merger, depending on how the protection of minority shareholders and transfer price regulations are specified.
    Keywords: Backward ownership,Entry deterrence,Foreclosure,Minority shareholdings,Partial ownership,Uniform pricing,Vertical integration
    JEL: G34 L22 L40
    Date: 2022
  3. By: Zelda Brutti; Luis Rojas
    Abstract: We propose an original theoretical framework that models early investment decisions of digital platform startups and use it to study how merger and acquisition policy affects consumer welfare by shaping such decisions. We formalize the investment options faced by digital platforms into a dual margin: investment in ‘customer engagement technology’, directed towards expanding the user base and in ‘intermediation technology’, directed towards lowering operational costs. Sinergies through technological transfer and increased investment incentives in customer engagement explain consumer welfare improvements in the case of M&As occurring between platforms with disjoint user bases. On the other hand, lower competition erodes consumer welfare in the case of allowing M&As between platforms with overlapping user bases. We conclude that M&A policy guidance should depend on the relationship between the incumbent’s and startup’s target users and on the ability of the startup to catch up with the incumbent.
    Keywords: digital platforms, mergers and acquisitions, investment
    JEL: L4 L81 O3 D25
    Date: 2021–12
  4. By: Pierre Dubois (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées); Rachel Griffith (Unknown); Martin O'Connell (Unknown)
    Abstract: The adoption of barcode scanning technology in the 1970's gave rise to a new form of data; scanner data. Soon afterwards researchers began using this new resource, and since then a large number of papers have exploited scanner data. The data provide detailed price, quantity and product characteristic information for completely disaggregate products at high frequency and typically either track a panel of stores and/or consumers. Their availability has led to advances, inter alia, in the study of consumer demand, the measurement of market power, firms' strategic interactions and decision-making, the evaluation of policy reforms, and the measurement of price dispersion and in ation. In this article we highlight some of the pro and cons of this data source, and discuss some of the ways its availability to researchers hastransformed the economics literature.
    Keywords: scanner data,demand estimation,market power,policy counterfactual,inflation
    Date: 2022–08
  5. By: Renjie Bao; Jan de Loecker; Jan Eeckhout
    Abstract: To answer the question whether managers are paid for market power, we propose a theory of executive compensation in an economy where firms have market power, and the market for managers is competitive. We identify two distinct channels that contribute to manager pay in the model: market power and firm size. Both increase the profitability of the firm, which makes managers more valuable as it increases their marginal product. Using data on executive compensation from Compustat, we quantitatively analyze how market power affects Manager Pay and how it changes over time. We attribute on average 45.8% of Manager Pay to market power, from 38.0% in 1994 to 48.8% in 2019. Over this period, market power accounts for 57.8% of growth. We also find there is a lot of heterogeneity within the distribution of managers. For the top managers, 80.3% of their pay in 2019 is due to market power. Top managers are hired disproportionately by firms with market power, and they get rewarded for it, increasingly so.
    Keywords: market power, manager pay, executive compensation, markups, reallocation, superstars
    JEL: C6 D4 D5 L1
    Date: 2022–04
  6. By: Alexander Usvitskiy (School of Advanced Studies); Dmitry Ryvkin (Department of Economics, Florida State University)
    Abstract: We consider competition for market shares between two firms that make costly investments to attract and retain customers. The value customers bring to the firms in the next period is higher if these customers are loyal, i.e., they remained with the firm. Based on the retention value and on the prior allocation of market shares, the firms' equilibrium investments either preserve the status quo or redistribute customers so that one of the firms gains and the other firm loses its market share. We conduct a laboratory experiment to test the theory and investigate the effects of the relative retention value and the initial state of the market on competition. The initial state of the market is either randomly assigned or endogenously generated through a preliminary contest between the firms. We find that competitors invest more as the customer retention value rises, but only when it is sufficiently high. Investment also rises with initial market share when it is low, but not when it is high. Somewhat surprisingly, we find that, for a given initial market share, investment is lower when this market share is endogenously won than when it is randomly assigned, which we attribute to within-match learning about the competitor's type.
    Keywords: Competition, Loyalty, Market shares, Dynamic game, Laboratory experiment
    JEL: C72 C92 D21 L21
    Date: 2022–10
  7. By: Sugata Marjit; Krishnendu Ghosh Dastidar; Gouranga Gopal Das
    Abstract: In this paper, unlike the conventional wisdom, we demonstrate that the relationship between the size of the market and number of firms would be non-monotonic. While moderate rise in the size would force the local firms to exit and only the foreign firm rules, substantial rise in the size would accommodate all firms. Also, the possibility of survival increases if the local firms could differentiate their product more and then we drift towards the conventional result.
    Keywords: product differentiation, free entry, Cournot, output, market size, technology, FDI
    JEL: L13 D40 F10
    Date: 2022
  8. By: Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
    Abstract: We propose a theory of how market power affects wage inequality. We ask how goods and labor market power jointly affect the level of wages, the Skill Premium, and wage inequality. We then use detailed microdata from the US Census between 1997 and 2016 to estimate the parameters of labor supply, technology and the market structure. We find that a less competitive market structure lowers the wage level, contributes 7% to the rise in the Skill Premium and accounts for half of the increase in between-establishment wage variance.
    Keywords: market power, wage inequality, Skill Premium, technological change, market structure, Endogenous markups, endogenous markdowns
    JEL: C6 D3 D4 D5 L1
    Date: 2022–09
  9. By: Shubhdeep Deb; Jan Eeckhout; Aseem Patel; Lawrence Warren
    Abstract: Wages for the vast majority of workers have stagnated since the 1980s while productivity has grown. We investigate two coexisting explanations based on rising market power: 1. Monopsony, where dominant firms exploit the limited mobility of their own workers to pay lower wages; and 2. Monopoly, where dominant firms charge too high prices for what they sell, which lowers production and the demand for labor, and hence equilibrium wages economy-wide. Using establishment data from the US Census Bureau between 1997 and 2016, we find evidence of both monopoly and monopsony, where the former is rising over this period and the latter is stable. Both contribute to the decoupling of productivity and wage growth, with monopoly being the primary determinant: in 2016 monopoly accounts for 75% of wage stagnation, monopsony for 25%.
    Keywords: market power, monopsony, monopoly, markdowns, markups, wage stagnation, concentration, HHI
    Date: 2022–09
  10. By: Daniel Berkowitz (University of Pittsburgh); Shuichiro Nishioka (West Virginia University, Department of Economics)
    Abstract: Using recent methods for estimating firm-level markups and profit shares, we document that Chinese manufacturing firms collected more rents following China's accession to the World Trade Organization (WTO). This is because the net entry of firms lagged the massive growth in the domestic market. These effects were particularly strong in domestic markets where state ownership was pervasive. While selection on large productive firms drove the rise in the aggregate markups in the United State (De Loecker et al, 2020), these competitive forces played a secondary role in Chinese manufacturing.
    Keywords: Markups, Profit shares, Net entry, Market expansion, Trade liberalization in China
    JEL: F13 L11 O19 O53
    Date: 2022–09
  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)
    Abstract: Paris-Lyon is the busiest High-Speed Line in Europe and has been open to open access competition since 18 December 2021. The purpose of this article is to explore the first effects on the price and frequency of competition between the Italian company Trenitalia and the French incumbent SNCF. The analysis is based on a large database (n = 971) collected from September 2019 to July 2022. The main challenge is to isolate the COVID-19 pandemic effect from the competition. A similar route without competition (Paris-Bordeaux) was selected to control the effects. The method relies on a descriptive analysis with an original dynamic timetable approach in the discussion. The results highlight an increase of frequency by 5% and a decrease in price by 10%. The prices charged by the newcomer are lower than those of the incumbent (-30% to -40%) though without enough volume to change the global equilibrium. Although far from a big bang, the comparison with the control route suggests a positive effect on price that moderates the economic catch-up effect following the COVID-19 pandemic in an inflationary context. More specifically, SNCF appears relatively insensitive to competitive pressure from Trenitalia. It has not significantly changed its price since the new offer was introduced and has maintained its trains.
    Keywords: Open-access competition,price,frequency,France,regulation,railroads,Working Papers du LAET
    Date: 2022–09
  12. 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 (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)
    Abstract: The paper explores the effect of the competitive tender for users through prices and frequencies in the regional railway passenger market. The analysis is original by an extended perimeter to seven European countries (France, Germany, Italy, Netherlands, Sweden, Switzerland, UK) and a total of 103 routes mixing market open to competition by tendering with market still under monopoly. Data are cross sectional and have been selected for one day. The method is based on an econometric analysis (Sureg) developed for other modes (air, coach) but never yet applied to the rail market and its specificities in terms of competition. For the regional services where competition is "for the market", the competition is analyzed through a dummy as a threat to lose the tender. Intermodal competition is limited to the coach services (dummy) and carpooling services (dummy). Results show that the threat of intra-modal competition can increase price for users but have no significant effect on frequencies. The analysis country by country highlights a similar performance for Sweden and Switzerland in spite of high differences in terms of competition. It suggests that the ability to negotiate contracts of public authorities and political choices can be more determinant than potential competition. Finally, effect of intermodal competition are weak mainly because of a limited offer. Results show that the probability to find a carpooling service increases when prices of train are increasing.
    Keywords: market structure,competition,tender,regional train,Railway competition,Regional Economy,Tender offer regulation,Working Papers du LAET
    Date: 2022–03
  13. By: Thiago Christiano Silva; Dimas Mateus Fazio
    Abstract: This paper examines if and how creditor rights reforms affect banking market competition. By decreasing the expected loss given default of creditors, policies aimed at improving creditor protection may also change the banking market structure. We study a Brazilian bankruptcy reform in 2005 that improved the recoverability of secured creditors in bankruptcy proceedings. We find that local banking concentration decreases in Brazilian municipalities that were more affected by the reform. This result is explained by non-leader banks gaining market share over local leader banks due to the reform. These results are robust to controlling for financial constraints variables. Furthermore, consistent with stronger collateral value reducing information asymmetry, more opaque firms benefit the most from the reform. Overall, our results highlight the role of creditor rights reforms in breaking the information monopoly of incumbent banks.
    Date: 2022–09
  14. By: Budzinski, Oliver; Feddersen, Arne
    Abstract: The controversy around the breakaway European Super League, set to conquer the UEFA Champions League, and the surrounding antitrust proceedings revive the academic discussion about the monopoly power of sport-internal governing bodies (like the UEFA), the justification for and limits of their powers, and potential abuses of their power. Against this background, we discuss how much monopoly is unavoidable in premier-level European football and how its powers can be limited and, thus, scope and incentives for power abuse may be reduced. We particularly find that championship management can be periodically assigned to third-parties (like the Super League organizers) by tender procedures, thus, creating a periodical competition for the market, fueling innovation incentives and strengthening the influence of fans' preferences.
    Keywords: sports economics,Super League,UEFA Champions League,monopoly,marketpower,sport associations,rival leagues
    JEL: D02 D42 D47 K21 L12 L30 L40 L83 Z20
    Date: 2022
  15. By: Justus Haucap; Christina Heldman
    Abstract: Traditional economic theory of collusion assumed that cartels are inherently unstable, and yet some manage to operate for years or even decades. While the literature has presented several determinants of cartel stability, the vast majority focuses on firms as entities, even though cartels are typically formed between individuals who need to develop structures that allow them to establish trust and ensure cooperation. We analyze 15 German cartels, focusing on the individual participants, the communication and internal structures within the cartels as well as their breakup. Our results indicate that cartel members are highly homogeneous and often rely on existing networks within the industry. Most impressively, only two of the 156 individuals involved in these 15 cartels were female, suggesting that gender also plays a role for cartel formation. We further identify various forms of communication and divisions of responsibilities and show that leniency programs are a powerful tool in breaking up cartels. Based on these results we discuss implications for competition policy and further research.
    Keywords: cartels, collusion, social networks, trust, antitrust
    JEL: L41 K21 Z13
    Date: 2022
  16. By: Christian Reiner (Research Office, Lauder Business School, Austria); Christian Bellak (Department of Economics, Vienna University of Economics and Business, Austria)
    Abstract: This contribution asks whether the economic power of firms has increased in Austria in parallel with many other OECD countries. A new conceptualization of corporate power is proposed, It draws a distinction between economic and political power, as well as between economic power due to firm size (termed “scalepower†) and market power in the traditional, more narrow sense. Synthesizing the historical literature on market power in Austria provides evidence of an in some cases unjustified assumption of increased competition intensity, stimulated by events such as the fall of the iron curtain or EU accession. Based on various methods, indicators and data, we provide estimations of markups and of various competition indicators like profitability, concentration rates and firm dynamics to highlight recent changes in the market power of Austrian firms in international comparison. The evidence suggests not only rather large markups of Austrian firms, but also that markups have increased. Together with the results such as rising profit rates, we tentatively conclude that the power of Austrian firms has increased. Drawing on long lasting and still ongoing debates in Europe and the US shows some parallels and documents the necessity of a policy debate on corporate power in Austria.
    Date: 2022–10
  17. By: Bukvić, Rajko
    Abstract: Serbian: С растом примене интернета и ИКТ технологија и развојем дигиталне економије крајем прошлог и почетком новог века питања конкуренције, њене природе и улоге у економији појавила су се у новом светлу и с новом снагом. Полазећи од ставова познате теорије пет сила Мајкла Портера, многи су очекидали да ће примена интернета довести до раста конкуренциије, показавши огромно дејство како на страни понуде, тако посебно на страни тражње. Нека емпиријска истраживања, изгледало је, потврђивала су такве наде. Али, други емпиријски подаци и одговарајућа истраживања показали су да то није сасвим тако, и да се потврђује алтернативна теорија „Победник узима све”, сагласно којој се конкуренција развија у правцу монополистичке конкуренције. Ситуација у Србији, која се у неким истраживањима нашла у групи земаља лидера у настанку у области ИКТ, за сада није јасна. Основи коришћења ИКТ већ су постављени, али електронски бизнис за сада није толико развијен. Емпиријских истраживања утицаја интернета и ИКТ на конкуренцију нема, али брзи развој ових делатности сугерише да је конкуренција за сада довољно снажна. То се посебно може рећи за сам сектор ИКТ, који је најбрже растућа делатност у српској економији. English: On the ground of the use of Internet and ICT technology and the digital economy development at the end of past and beginning of new century the competition issues, its nature and role in the economy appeared in new light and with new power. Many people expected, based on the famous Porter’s theory of five forces, the competition has to grow through the internet use, with huge impact on the supply as well the demand. Some empirical researches seemed to claim these expectations. But, other empirical evidence and appropriated researches shown that there it is no such. They have shown that the alternative theory was claimed. According this theory “Winner-takes-all” the competition development leads to monopolistic competition. Situation in Serbia, which in some researches was named emerged leader in the ICT area, is unclear still. Bases of the ICT use are placed, but electronic business is not yet so developed. There is the lack of empirical researches of the impact of internet and ICT on the competition, but fast development of such branches suggests that competition is strong. This can be say especially for ICT sector, which is the branch with fastest development in Serbian economy.
    Keywords: дигитална економија, интернет, конкуренција, концепција пет сила, теорија «Победник узима све», Дуги реп, ИКТ, Србија, digital economy, internet, competition, five forces conception, theory “winner-takes-all”, Long tail, ICT, Serbia
    JEL: D40 D80 D86 L0 L12 L81 O52
    Date: 2022
  18. By: Bukvić, Rajko
    Abstract: Serbian: На основу података завршних рачуна банака о пет билансних величина (актива, депозити, капитал, пословни приход, кредити) обрачунати су индекси Хиршмана-Херфиндала за период 2016–2021 (I–IX). Добијене вредности декомпоноване су поступком који су предложили Бахо и Салас, чиме је добијен утицај броја банака и дисперзије њихових удела на вредности индекса концентрације. Затим је извршено класификовање промена концентрације у зависности од односа стопа промена двају фактора. Они су били неједнаки и варирали по годинама. Међу издвојеним типовима промена преодладава пад индекса изазван смањењем неједнакости тржишних удела и смањењем броја банака, при чему је прво веће. Најзад, у 2021. смањен је броја банака уз раст дисперзије њихових удела, што је с теоријског становишта јасан услов раста индекса концентрације. English: On the basis of five balance variables in bank balances (total assets, deposits, capital, operating income, and loans), the Hirschman–Herfindahl indices for period 2016–2021 (I–IX) are calculated. The indices values are decomposed by the Bajo and Salas approach, and the impacts of number of banks and dispersion of its market shares are established. Then we classified the concentration changes, depending on relations between the rates of changes of two factors. They were unequal and vary during the years. Among the identified types of changes there was the most frequent decrease of HHI, caused by decrease of inequality of market shares and decrease of number of banks, where the first was greater. At the end, in 2021 there was the decrease of banks number with increase of dispersion of its shares, which is in theoretical sense condition for the increase of concentration index.
    Keywords: концентрација, банковни сектор, декомпозиција индекса Хиршмана-Херфиндала, број банака, дисперзија тржишних удела, типови промена степена концентрације, concentration, banking sector, decomposition of the index Hirschman–Herfindahl, number of banks, dispersion of market shares, types of the concentration degree changes
    JEL: C38 G21 L10 L19
    Date: 2022
  19. By: Дускалиева Сауле // Duskaliyeva Saule (National Bank of Kazakhstan); Галимова Агия // Galimova Agiya (National Bank of Kazakhstan); Жанабеков Сарсен // Zhanabekov Sarsen
    Abstract: Одним из необходимых условий для низкой инфляции является высоко развитая конкурентная среда. В данной работе авторы попытались, основываясь на соответствующем опыте зарубежных исследований, проанализировать наличие связи между конкурентной средой и ценообразованием в Казахстане. Главным прокси-показателем конкуренции выступала наценка (mark-up), ценообразование характеризовалось динамикой среднегодового ИПЦ. Исследование включало агрегированный и отраслевой уровень, проводилось на основе статистических данных, публично размещаемых на сайте Бюро национальной статистики, с использованием Excel и эконометрического пакета анализа Eviews 12.
    Keywords: конкуренция, индекс Лернера, методология Roeger, Lerner index, Roeger methodology
    JEL: C32 C43 C51 C82 E24 E31
    Date: 2022
  20. By: Charles Hodgson
    Abstract: Manufacturers of durable goods can encourage consumers facing transaction costs to upgrade by accepting used units as trade-ins. These “buyback schemes” increase demand for new units, but increase the supply of used units if trade-ins are resold. In this paper, I investigate the equilibrium effects of buyback schemes in the market for business jets. I find that buyback increases demand for new units by 37% at fixed prices. However, in equilibrium this increase in sales is diminished by 38% due to substitution away from new jets among first time buyers. Because of this cannibalization, offering buyback is a dominant strategy for only 3 of the 6 major firms, with 3 firms offering buyback as a best response to other firms' policies. I show that equilibrium buyback policies can change under counterfactual market structures: a simulated merger leads to a reduction in consumer welfare, 70% of which is due to a change in buyback policy.
    JEL: L13 L14 L20 L93
    Date: 2022–09
  21. By: World Bank
    Keywords: Law and Development - Corporate Law Private Sector Development - Competition Policy Private Sector Development - Corporate Governance Private Sector Development - Legal Regulation and Business Environment Private Sector Development - Private Sector Economics
    Date: 2021–06
  22. By: Lucia S. Foster; John C. Haltiwanger; Cody Tuttle
    Abstract: Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences.
    JEL: L11 O14
    Date: 2022–09
  23. By: Gopalakrishnan, Balagopal; Jacob, Joshy; Srivastava, Jagriti
    Abstract: Using the COVID-19 pandemic as an exogenous shock, we examine whether firms engage in opportunistic mergers and acquisitions during uncertainty. Particularly, we analyze the inorganic growth strategies of acquiring firms faced with disproportionate pandemic-induced opportunities using a cross-country deal-level data. We find a significant increase in the deal completion propensity and deal size, and a decrease in the deal completion time for acquirers that are more amenable to remote working. The effect is more pronounced when both the acquirer and the target are amenable to remote working. Our findings indicate that amenable firms, which were initially reluctant to engage in opportunistic acquisitions, engaged aggressively in the subsequent quarters with an abatement in pandemic-induced uncertainty. The study provides novel insights into the behaviour of acquisitive firms during the pandemic.
    Date: 2022–09–26

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