Declining Market Competition in China
No 6897, Working Paper from Department of Economics, University of Pittsburgh
Using methods in Hall and Jorgenson (1967) and Barkai (2020), we find that pure profitshares rose 25.6 percentage points in China during a period when reforms were enacted thatshould have strengthened market competition. Increases in firms' markups accounts for roughlyfive-sixths of the increase of pure profit shares in manufacturing. Firms that raised markupsoperated primarily in industries where state owned enterprises (SOEs) were pervasive, net entryof firms was slow, and there was a strong reallocation of market shares to SOEs and a weakreallocation to competitive firms. While there was an overall decline in market competition,markets became more competitive in industries where SOEs had small market shares.
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