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Superstar Economies: Concentration and Increasing Differences between Firms
Saturday, Jan. 4, 2020
10:15 AM - 12:15 PM (PDT)
American Economic Association
Changes in Firm Inequality and Market Power
Firms have become increasingly different in terms of size (concentration), wages and productivity. Alongside these trend there appears to be an increase in aggregate price-cost markups. Using firm-level panel data from the US and EU, we investigate four hypotheses to explain these trends: (i) an increase in platform competition; (ii) a rise in fixed costs; (iii) a decline in antitrust enforcement and (iv) an increase in competition.
We study the evolution of super star firms in the Global economy over the past 30 years. We estimate their contribution to global productivity growth using Hulten’s formula and using a measure of global reallocation of economic activity.
Supersize Me: Intangibles and Industry Concentration
The paper presents new evidence on the growing scale of big businesses in the United States, Japan and Europe. It documents a rising industry concentration across the majority of countries and sectors over the period 2002 to 2014. Industry-level and firm-level econometric analysis indicates that intangibles, particularly innovation, R&D and patents, play a key role in enabling large firms to scale up and increase their market shares. The role of intangibles appears to be stronger in more globalised and more digital-intensive industries.
Diverging Productivity of Best and the Rest: The Role of Globalization
Using firm-level granular data from the OECD countries during 2000-2015, we show that while the productivity gap between frontier and laggard firms widened, the same gap between multinational firms narrowed down. Measuring the productivity gap both with the difference in productivity levels of frontier and laggard firms and also with the productivity dispersion, we show that these facts hold in the cross-section of firms. The productivity difference measure is not robust to within firm variation, whereas the dispersion measure is. This implies that, when we investigate the same firm over time, the productivity dispersion goes down for multinationals and goes up for domestic firms. We write down a model to understand these dynamics. As in Ates and Akcigit (2019), our model captures the strategic behavior between competing firms, its effect on their innovation decisions, and the resulting ``best vs. the rest'' dynamics. Our model shows that, as the knowledge diffusion is higher among multinational firms through their global trade and financial linkages network, their productivity dispersion narrows down as opposed to that of domestic firms. We run regressions both with real and model generated data to show the effect of knowledge spillovers on relative productivity dynamics of domestic and multinational firms.
D2 - Production and Organizations
L2 - Firm Objectives, Organization, and Behavior