Working Paper: CEPR ID: DP12536
Authors: German Gutierrez; Thomas Philippon
Abstract: We argue that the increasing concentration of US industries is not an efficient response to changes in technology and reflects instead decreasing domestic competition. Concentration has risen in the U.S. but not in Europe; concentration and productivity are negatively related; and industry leaders cut investment when concentration increases. We then establish the causal impact of competition on investment using Chinese competition in manufacturing, noisy entry in the late 1990s, and discrete jumps in concentration following large M&As. We find that more (less) competition causes more (less) investment, particularly in intangible assets and by industry leaders.
Keywords: markups; concentration; investment
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Declining domestic competition (DDC) (L19) | Reduction in investment (G31) |
| Increased concentration (D30) | Decrease in investment (E22) |
| More competition (L19) | More investment (E22) |
| Industries exposed to Chinese competition (L61) | Increased investment in R&D (O39) |
| Decline in investment due to DDC (F21) | Shortfall of non-residential business capital (E22) |