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

Author

Listed:
  • David C. Maré

    (Motu Economic and Public Policy Research)

  • Richard Fabling

    (Independent Researcher)

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.

Suggested Citation

  • David C. Maré & Richard Fabling, 2019. "Competition and productivity: Do commonly used metrics suggest a relationship?," Working Papers 19_16, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:19_16
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    References listed on IDEAS

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    Cited by:

    1. Richard Fabling, 2021. "Living on the edge: An anatomy of New Zealand’s most productive firms," Working Papers 21_01, Motu Economic and Public Policy Research.

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    More about this item

    Keywords

    competition; profit elasticity; price-cost margin; industry concentration; multifactor productivity;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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