Working Paper: CEPR ID: DP13548
Authors: Thomas Philippon; German Gutierrez; Callum Jones
Abstract: We propose a model to identify the causes of rising profits and concentration, and declining entry and investment in the US economy. Our approach combines a rich structural DSGE model with cross sectional identification from firm and industry date. Using asset prices, our model estimates the realized and anticipated shocks that drive the endogeneity of entry and concentration and recovers shocks to entry costs. We validate our approach by showing that the model implied entry shocks correlate with independently constructed measures of entry regulation and M&A activities. We conclude that entry costs have risen and that the ensuing decline in competition has depressed consumption by five to ten percent.
Keywords: Corporate Investment; Competition; Tobin's Q; Zero Lower Bound
JEL Codes: E2; E4; E5; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising entry costs (L11) | decline in competition (L13) |
| decline in competition (L13) | depressed consumption (E21) |
| decline in competition (L13) | reduced capital stock (E22) |
| entry costs (L11) | industry concentration (L69) |
| anticipated demand increase (J23) | immediate entry of new firms (M13) |
| immediate entry of new firms (M13) | decrease in concentration (D30) |
| rising entry costs (L11) | fewer firms entering the market (L19) |
| ZLB (E62) | exacerbates impact of rising entry costs on macroeconomic dynamics (F69) |
| rising entry costs (L11) | depressed consumption (E21) |
| rising entry costs (L11) | reduced capital stock (E22) |