Does Firm Exit Increase Prices?

Melinda Suveg ()
Additional contact information
Melinda Suveg: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden, https://www.ifn.se/en/researchers/ifn-researcher/melinda-suveg/

No 1414, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper examines how changes in product market concentration, specifically firm exit, affect prices. I develop a model where firms have variable markups to show that the remaining firms increase their markups and prices after their competitors’ exit. The model predictions are tested using micro-data on Swedish firms. I use the exposure of firms to a bank, which was severely affected by the financial crisis abroad, as an instrument to identify the causal relationship between firm exit and prices. I find that the remaining firms increase their prices by 0.3 percent when firms with a combined market share of one percent exit.

Keywords: Price setting; Market structure; Financial shocks; Firm exit (search for similar items in EconPapers)
JEL-codes: D43 E31 E32 L13 L16 L60 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2021-11-08
New Economics Papers: this item is included in nep-bec, nep-com, nep-eur, nep-ind, nep-mac and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ifn.se/wfiles/wp/wp1414.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1414

Access Statistics for this paper

More papers in Working Paper Series from Research Institute of Industrial Economics Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Elisabeth Gustafsson ().