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Agglomeration, Misallocation, and (the Lack of) Competition†

Agglomeration, Misallocation, and (the Lack of) Competition† AbstractIndustrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model of how this reduction in competition affects aggregate income. We apply our approach to the well-known special economic zones (SEZs) of China. We estimate that firms in SEZs exhibit cooperative pricing almost three times as intensively as firms outside SEZs. Nevertheless, we model the aggregate consequences of SEZs and find positive effects because markups become higher but also more equal. (JEL D22, L60, O14, O18, P25, P31, R32) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

Agglomeration, Misallocation, and (the Lack of) Competition†

Agglomeration, Misallocation, and (the Lack of) Competition†

American Economic Journal: Macroeconomics , Volume 13 (4) – Oct 1, 2021

Abstract

AbstractIndustrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model of how this reduction in competition affects aggregate income. We apply our approach to the well-known special economic zones (SEZs) of China. We estimate that firms in SEZs exhibit cooperative pricing almost three times as intensively as firms outside SEZs. Nevertheless, we model the aggregate consequences of SEZs and find positive effects because markups become higher but also more equal. (JEL D22, L60, O14, O18, P25, P31, R32)

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Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20180443
Publisher site
See Article on Publisher Site

Abstract

AbstractIndustrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model of how this reduction in competition affects aggregate income. We apply our approach to the well-known special economic zones (SEZs) of China. We estimate that firms in SEZs exhibit cooperative pricing almost three times as intensively as firms outside SEZs. Nevertheless, we model the aggregate consequences of SEZs and find positive effects because markups become higher but also more equal. (JEL D22, L60, O14, O18, P25, P31, R32)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Oct 1, 2021

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