Product Market Competition and the Relocation of Economic Activity: Evidence from the Supply Chain

Sudipto Dasgupta, Chen Chen, Thanh Huynh and Ying Xia

No 15056, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We show that increasing competition changes the location of economic activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier’s relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer’s innovation. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth.

Keywords: Establishment relocation; Supply chain; Product market competition; Knowledge spillover (search for similar items in EconPapers)
JEL-codes: G30 L1 O3 (search for similar items in EconPapers)
Date: 2020-07
New Economics Papers: this item is included in nep-com and nep-ure
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