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on Industrial Organization |
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Issue of 2024‒02‒12
eight papers chosen by |
| By: | Ricardo Marto |
| Abstract: | Is the recent rise in markups caused by increased monopoly power or is it a natural consequence of structural change? I show that the rise in aggregate markups has been driven by a reallocation of market share away from non-services to services-producing firms and a faster increase of services’ markups. I develop a two-sector model to assess the sources of the rise in markups, in which the two forces of structural change play opposing roles. On one hand, an increase in the relative productivity of manufacturing leads to a decline of the relative price of manufactured goods and to an increase of the goods markups. On the other hand, the increase in incomes that triggers the rise of the services sector leads to higher markups for firms in services. I show that the rise in markups is in line with the rise of the services sector and the fall of the relative price of manufactured goods, and may not necessarily reflect a decline of competition. I provide novel experimental evidence supporting the notion that the price elasticity of demand decreases with income. |
| Keywords: | endogenous markups; income elasticity of demand; manufacturing; non-homothetic preferences; online experiment; price elasticity of demand; services; skill premium; structural change; survey; technological progress |
| JEL: | D11 D12 D22 D43 E21 E23 L11 L16 O41 O47 |
| Date: | 2023–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:97547&r=ind |
| By: | Haarburger, Richard; Stemmler, Henry |
| Abstract: | This paper studies how automation technology affects market power in the global economy. We develop a theoretical model in which firms' markups are endogenous to factor input choices based on technology levels, but are also affected by technology adoption of other domestic and foreign firms. In an empirical analysis, we find that market power, measured as the markup of price over marginal cost, declines on average with higher levels of automation. However, there is substantial heterogeneity, with firms in the highest revenue and markup quintile gaining market power. Moreover, we find that exposure to foreign automation increases competition in the local market. |
| Keywords: | Automation, Markups, Robots, Market Concentration |
| JEL: | O33 F41 F12 D43 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:281378&r=ind |
| By: | De Ridder, Maarten |
| Abstract: | This paper offers a unified explanation for the slowdown of productivity growth, the decline in business dynamism, and the rise of market power. Using a quantitative framework, I show that the rise of intangible inputs, such as software, can explain these trends. Intangibles reduce marginal costs and raise fixed costs, which gives firms with high-intangible adoption a competitive advantage, in turn deterring other firms from entering. I structurally estimate the model on French and US micro data. After initially boosting productivity, the rise of intangibles causes a decline in productivity growth, consistent with the empirical trends observed since the mid-1990s. |
| Keywords: | productivity; growth; business dynamism; intangible inputs; market power; Centre for Macroeconomics; “Investissements d’Avenir” program (reference: ANR-10-EQPX-1; CASD |
| JEL: | D20 D24 E23 L11 O31 O47 |
| Date: | 2024–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:120285&r=ind |
| By: | Daniel Garcia |
| Abstract: | This paper studies a model of search engine competition with endogenous obfuscation. Platforms may differ in the quality of their search algorithms. I study the impact of this heterogeneity in consumer surplus, seller profits and platform revenue. I show that the dominant platform will typically induce higher prices but that consumers may benefit from asymmetries. I also show that enabling sellers to price-discriminate across platforms is pro-competitive. I then embed the static model in a dynamic setup, whereby past market shares lead to a better search algorithm. The dynamic consideration is pro-competitive but initial asymmetries are persistent. |
| Keywords: | search engine, platform competition, consumer search |
| JEL: | D43 D83 L13 M37 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10856&r=ind |
| By: | Moreno, Diego; Petrakis, Emmanuel |
| Abstract: | We consider a simple private goods market economy and show that when firms have market power the equilibrium real wage, employment, real output, and labor share are less than under perfect competition. Contrary to common wisdom market concentration may have non-monotonic general equilibrium effects: the equilibrium allocation of a monopolistic economy may Pareto dominate that of an oligopolistic economy. Corporate taxes provide an appropriate instrument to pursue distributional objectives since, unlike taxes on labor income, they do not create additional deadweight losses. An appropriate minimum real wage improves efficiency and increases the labor share in a monopolistic economy, whereas in an oligopolistic economy its efficiency effects are uncertain due the existence of multiple equilibria. |
| Keywords: | Income Distribution; General Equilibrium; Market Power; Oligopoly; Monopoly; Minimum Wage Policy |
| JEL: | D4 D5 D6 L1 L4 |
| Date: | 2024–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:39547&r=ind |
| By: | Sharat Ganapati |
| Abstract: | Nearly half of all transactions in the $5 trillion market for manufactured goods in the United States were intermediated by wholesalers in 2012, up from 32 percent in 1992. Seventy percent of this increase is due to the growth of “superstar” firms - the largest one percent of wholesalers. Estimates based on detailed administrative data show that the rise of the largest firms was driven by an intuitive linkage between their sourcing of goods from abroad and an expansion of their domestic distribution network to reach more buyers. Both elements require scale economies and lead to increased wholesaler market shares and markups. Counterfactual analysis shows that despite increases in wholesaler market power and markups, scale has benefits. Buyers gain access to globally sourced varieties, nationwide distribution networks, and increased quality while wholesalers decrease their marginal costs. |
| JEL: | D43 F14 L13 L81 R12 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32036&r=ind |
| By: | M N, Nikhil; S Shenoy, Sandeep; Chakraborty, Suman; B M, Lithin |
| Abstract: | The nature of the relationship between leverage and firm performance has been a subject of investigation in extant literature. We re-examine the nature of the association by using a sample of 78 non-financial firms listed in the Nifty 100 index during the 2013-2023 period by applying the quantile regression technique and comparing the result with the linear regression approach (system GMM technique). Our empirical analysis demonstrates that leverage negatively impacts the performance of firms. Further, results show that the association is non-homogeneous among firms of different quantiles: leverage withers the performance of highly profitable firms (upper quantile) than low profitable firms (lower quantile). The identified concave relationship highlights the prominence of optimal capital structure and the role of finance managers in designing a sound financial policy that matches firm characteristics and borrowing requirements. The findings of our study draw insightful implications for managers and policymakers while contributing to the ongoing leverage and firm performance debate reported in previous studies. |
| Keywords: | leverage, profitability, non-homogeneous, nonlinear relation, quantile regression, GMM, India |
| JEL: | C23 C26 C33 G30 G32 |
| Date: | 2023–09–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119669&r=ind |
| By: | Meccheri, Nicola; Vergari, Cecilia |
| Abstract: | This paper investigates the issue of how alternative unionization structures in labour markets affect the choice of product quality differentiation by firms in product markets, and how this determines relative welfare outcomes of different union structures. In the presence of decentralized wage bargaining (firm-specific or coordinated unionization), increasing product differentiation not only reduces competition between firms but it also affects wage setting. Instead, when wage setting is centralized, wages do not depend on product quality differentiation in the product market but when the bargained wage is sufficiently high, the high-quality firm monopolizes the market. In turn, union wage setting does affect the endogenous choices by firms of the quality level of their products: especially when unionization is decentralized and unions have high relative bargaining power, the average product quality in the product market increases remarkably. However, as unionization reduces output, consumer surplus and overall welfare are always lower with respect to the case in which labour market is perfectly competitive, and decentralized unionization is generally welfare enhancing with respect to centralized unionization. |
| Keywords: | unionization structures, vertical differentiation, welfare |
| JEL: | J51 L13 L15 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1377&r=ind |