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Global declining competition?

Author

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  • Díez, Federico J.
  • Fan, Jiayue
  • Villegas-Sánchez, Carolina

Abstract

Using a new firm-level dataset on private and listed firms from advanced economies and emerging markets, we document four stylized facts on market power in global markets. First, competition has declined, but only modestly—average markups increased from 1.22 to 1.29 (6%) during 2000–2015, especially in services and in advanced economies. Second, the markups of listed firms are higher and experienced stronger increases than those of private firms. Third, the markup increase is driven by firms in the top decile of the markup distribution (which includes both large and small firms), and there is a U-shaped relation between firm size and markups. Finally, the increase is mostly driven by increases within incumbents and, to a lesser extent, by market share reallocation towards high-markup entrants.

Suggested Citation

  • Díez, Federico J. & Fan, Jiayue & Villegas-Sánchez, Carolina, 2021. "Global declining competition?," Journal of International Economics, Elsevier, vol. 132(C).
  • Handle: RePEc:eee:inecon:v:132:y:2021:i:c:s0022199621000696
    DOI: 10.1016/j.jinteco.2021.103492
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    4. von Maydell, Richard, 2023. "Artificial Intelligence and its Effect on Competition and Factor Income Shares," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277654, Verein für Socialpolitik / German Economic Association.
    5. Philipp Meinen & Ana Cristina Soares, 2022. "Markups and Financial Shocks," The Economic Journal, Royal Economic Society, vol. 132(647), pages 2471-2499.
    6. Alfaro, Martin & Warzynski, Frederic, 2021. "Trade liberalization with granular firms," Economic Modelling, Elsevier, vol. 105(C).
    7. Mertens, Matthias & Mottironi, Bernardo, 2023. "Do larger firms exert more market power? Markups and markdowns along the size distribution," LSE Research Online Documents on Economics 121283, London School of Economics and Political Science, LSE Library.
    8. Carter Davis & Alexandre Sollaci & James Traina, 2022. "Profit Puzzles or: Public Firm Profits Have Fallen," Papers 2201.09160, arXiv.org.
    9. Agustin Velasquez, 2023. "Production Technology, Market Power, and the Decline of the Labor Share," IMF Working Papers 2023/032, International Monetary Fund.
    10. Alex Clymo & Filip Rozsypal, 2022. "Firm Cyclicality and Financial Frictions," Discussion Papers 2207, Centre for Macroeconomics (CFM).
    11. Wang, Heng & Wei, Siqi & Zhu, Xiaoyang, 2023. "Stand in the wind: Market power reformation during uncertain periods," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 12-28.
    12. García-Perea, Pilar & Lacuesta, Aitor & Roldan-Blanco, Pau, 2021. "Markups and cost structure: Small Spanish firms during the Great Recession," Journal of Economic Behavior & Organization, Elsevier, vol. 192(C), pages 137-158.
    13. Sergey G. Kokovin & Shamil Sharapudinov & Alexander Tarasov & Philip Ushchev, 2020. "A Theory of Monopolistic Competition with Horizontally Heterogeneous Consumers," CESifo Working Paper Series 8082, CESifo.
    14. Ricardo Marto, 2023. "Structural Change and the Rise in Markups," Working Papers 2024-002, Federal Reserve Bank of St. Louis.
    15. Maarten de Ridder, 2022. "Market power and innovation in the intangible economy," POID Working Papers 064, Centre for Economic Performance, LSE.
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    More about this item

    Keywords

    Markups; Market power; TFP; Firm size;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F6 - International Economics - - Economic Impacts of Globalization
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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