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Competition and productivity: Do commonly used metrics suggest a relationship?

David Maré () and Richard Fabling

No 19_16, Working Papers from Motu Economic and Public Policy Research

Abstract: We demonstrate the power of recently redeveloped productivity microdata to produce a range of meaningful competition indicators highlighting different aspects of industry competitiveness. Combining these competition metrics into composite indicators, we summarise the diverse range of competitive environments in New Zealand by clustering industries into four distinct groups. Estimating the relationship between competition and productivity within these groups provides some suggestive results that the tail of unproductive firms may be truncated when competition is greater, in part due to greater selection-to-exit based on productivity. Overall, the limited evidence we find for a direct relationship between competition and productivity does not necessarily imply that the two are unrelated, but more likely reflects that changes in competition in New Zealand over the sample period have not been particularly pronounced, making it difficult to identify a systematic relationship.

Keywords: competition; profit elasticity; price-cost margin; industry concentration; multifactor productivity (search for similar items in EconPapers)
JEL-codes: D22 D24 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-hme and nep-ind
Date: 2019-08
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