The Rise of Specialized Firms

Lorenz K.F. Ekerdt and Kai-Jie Wu

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders—absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy.

JEL-codes: F14 L11 L25 O33 O47 (search for similar items in EconPapers)
Pages: 79 pages
Date: 2024-02
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www2.census.gov/library/working-papers/2024/adrm/ces/CES-WP-24-06.pdf First version, 2024 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:24-06

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