Working Paper: CEPR ID: DP3162
Authors: Pedro L. Marn; Georges Siotis
Abstract: This Paper empirically tests the ?bounds approach? to industry structure proposed by Sutton ((1991), (1998)). To carry out this task, we focus on the chemical industry. Part of the novelty in this exercise is that we work on the finest possible level of disaggregation. Also, we identify demand substitutability from direct industry sources. This allows us to carefully define markets, and identify R&D intensity for each of them. Our empirical specification allows us to simultaneously test the predictions of Sutton (1991) and Sutton (1998). Our results provide strong support to Sutton?s theoretical framework.
Keywords: bounds approach; chemical industry; innovation; market structure
JEL Codes: L11; L65; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market size (L25) | concentration in low R&D industries (L69) |
| market size (L25) | concentration in high R&D industries (O32) |
| demand substitutability (h) (D11) | concentration in high R&D industries (O32) |