Working Paper: NBER ID: w22947
Authors: Wyatt J. Brooks; Joseph P. Kaboski; Yao Amber Li
Abstract: Industrial clusters are promoted by policy and generally viewed as good for growth and development, but both clusters and policies may also enable non-competitive behavior. This paper studies the presence of non-competitive pricing in geographic industrial clusters. We develop, validate, and apply a novel test for collusive behavior. We derive the test from the solution to a partial cartel of perfectly colluding firms in an industry. Outside of a cartel, a firm's markup depends on its market share, but in the cartel, markups across firms converge and depend instead on the total market share of the cartel. Empirically, we validate the test using plants with common owners, and then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is about four times higher in Chinese special economic zones than outside those zones.
Keywords: industrial clusters; noncompetitive pricing; collusion; Chinese manufacturing; special economic zones
JEL Codes: L11; O1; O25; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| noncompetitive pricing behavior (L11) | collusion (D74) |
| collusion (D74) | noncompetitive pricing in SEZs (L11) |
| market shares (L17) | collusion (D74) |
| common ownership (G32) | collusion (D74) |
| market shares (L17) | noncompetitive pricing (L11) |