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Product Market Competition and the Relocation of Economic Activity: Evidence from the Supply Chain

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  • Dasgupta, Sudipto
  • Chen, Chen
  • Huynh, Thanh
  • Xia, Ying

Abstract

We show that increasing competition changes the location of economic activity and, in turn, affects supply chain relationships. Using establishment-level data, we find that when upstream product markets become more competitive, suppliers are more likely to relocate their establishments closer to customers. Following the supplier’s relocation, its sales to the customer increase, its relationship with the customer is less likely to be terminated, and its innovation is more aligned with the customer’s innovation. However, the improved relationship, by causing the supplier to engage more in innovation dedicated to the customer, adversely affects creative innovation, which is known to drive growth.

Suggested Citation

  • Dasgupta, Sudipto & Chen, Chen & Huynh, Thanh & Xia, Ying, 2020. "Product Market Competition and the Relocation of Economic Activity: Evidence from the Supply Chain," CEPR Discussion Papers 15056, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15056
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    More about this item

    Keywords

    Establishment relocation; Supply chain; Product market competition; Knowledge spillover;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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