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Agglomeration and (the Lack of) Competition

Author

Listed:
  • Yao Amber Li

    (Hong Kong University of Science and Tech)

  • Joseph Kaboski

    (University of Notre Dame)

  • Wyatt Brooks

    (University of Notre Dame)

Abstract
Industrial clusters are generally viewed as good for growth and development, but clusters can 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 identification strategy 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, markups depend on a firm’s market share but not on the total market share of firms in the agglomeration, but in the cartel, markups are constant across firms and depend only on the overall market share of the agglomeration. Empirically, we validate the test using plants with a common owner, and we 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 roughly four times higher in China’s “special economic zones†.

Suggested Citation

  • Yao Amber Li & Joseph Kaboski & Wyatt Brooks, 2016. "Agglomeration and (the Lack of) Competition," 2016 Meeting Papers 1697, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1697
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    References listed on IDEAS

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    1. Wang, Jin, 2013. "The economic impact of Special Economic Zones: Evidence from Chinese municipalities," Journal of Development Economics, Elsevier, vol. 101(C), pages 133-147.
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    4. Simon Alder & Lin Shao & Fabrizio Zilibotti, 2012. "The Effect of Economic Reform and Industrial Policy in a Panel of Chinese Cities," DEGIT Conference Papers c017_061, DEGIT, Dynamics, Economic Growth, and International Trade.
    5. Marhsall, Robert C. & Marx, Leslie M., 2014. "The Economics of Collusion: Cartels and Bidding Rings," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262525941, April.
    6. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    7. Christie, William G & Schultz, Paul H, 1994. "Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-1840, December.
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    Cited by:

    1. Corina Boar & Virgiliu Midrigan, 2019. "Markups and Inequality," NBER Working Papers 25952, National Bureau of Economic Research, Inc.
    2. van Vlokhoven, Has, 2022. "Decomposing the Rise in Markups," Other publications TiSEM 0b616f62-13a7-46f2-b285-9, Tilburg University, School of Economics and Management.
    3. Ariel Burstein & Basile Grassi & Vasco Carvalho, 2019. "Bottom-Up Markup Fluctuations," 2019 Meeting Papers 505, Society for Economic Dynamics.
    4. Dai, R. & Mookherjee, D. & Munshi, K. & Zhang, X., 2018. "Community Networks and the Growth of Private Enterprise in China," Cambridge Working Papers in Economics 1850, Faculty of Economics, University of Cambridge.
    5. Simon Alder & Lin Shao & Fabrizio Zilibotti, 2016. "Economic reforms and industrial policy in a panel of Chinese cities," Journal of Economic Growth, Springer, vol. 21(4), pages 305-349, December.
    6. Korytin, A.V. (Корытин, А.В.) & Shatalovа, Svetlana Sergeevna (Шаталова, Светлана Сергеевна), 2016. "Improving the Tax Relief on Personal Property [Совершенствование Льгот По Налогу На Имущество Физических Лиц]," Working Papers 2334, Russian Presidential Academy of National Economy and Public Administration.
    7. Ruochen Dai & Dilip Mookherjee & Kaivan Munshi & Xiaobo Zhang, 2019. "The Community Origins of Private Enterprise in China," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-320, Boston University - Department of Economics.
    8. Christian Reiner & Maximilian Benner, 2022. "Cooperation bias in regional policy: Is competition neglected?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(1), pages 187-221, August.
    9. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    10. Theresa Chaudhry & Muhammad Haseeb & Maryiam Haroon, 2017. "Economic geography and misallocation in Pakistan’s manufacturing hub," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 59(1), pages 189-208, July.

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