Agglomeration and (the Lack of) Competition
Yao Li (),
Joseph Kaboski and
Wyatt Brooks ()
No 1697, 2016 Meeting Papers from Society for Economic Dynamics
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 firmâ€™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 Chinaâ€™s â€œspecial economic zonesâ€ .
New Economics Papers: this item is included in nep-com, nep-cse, nep-geo, nep-tra and nep-ure
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Persistent link: http://EconPapers.repec.org/RePEc:red:sed016:1697
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