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Agglomeration and (the Lack of) Competition

Author

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  • Yao Amber Li

    (Hong Kong University of Science and Tech)

  • Joseph Kaboski

    (University of Notre Dame)

  • Wyatt Brooks

    (University of Notre Dame)

Abstract

Industrial clusters are generally viewed as good for growth and development, but clusters can also enable non-competitive behavior. This paper studies the presence of non-competitive pricing in geographic industrial clusters. We develop, validate, and apply a novel identification strategy for collusive behavior. We derive the test from the solution to a partial cartel of perfectly colluding firms in an industry. Outside of a cartel, markups depend on a firm’s market share but not on the total market share of firms in the agglomeration, but in the cartel, markups are constant across firms and depend only on the overall market share of the agglomeration. Empirically, we validate the test using plants with a common owner, and we then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is roughly four times higher in China’s “special economic zones†.

Suggested Citation

  • Yao Amber Li & Joseph Kaboski & Wyatt Brooks, 2016. "Agglomeration and (the Lack of) Competition," 2016 Meeting Papers 1697, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:1697
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    File URL: https://economicdynamics.org/meetpapers/2016/paper_1697.pdf
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    References listed on IDEAS

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    1. Brandt, Loren & Van Biesebroeck, Johannes & Zhang, Yifan, 2012. "Creative accounting or creative destruction? Firm-level productivity growth in Chinese manufacturing," Journal of Development Economics, Elsevier, vol. 97(2), pages 339-351.
    2. Marshall, Robert C. & Marx, Leslie M., 2012. "The Economics of Collusion: Cartels and Bidding Rings," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017326, January.
    3. Simon Alder & Lin Shao & Fabrizio Zilibotti, 2012. "The Effect of Economic Reform and Industrial Policy in a Panel of Chinese Cities," DEGIT Conference Papers c017_061, DEGIT, Dynamics, Economic Growth, and International Trade.
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    Cited by:

    1. Eliaz, Kfir & Oren-Kolbinger, Orli & Weisburd, Sarit, 2017. "Limited Attention, Salience and Changing Prices: Evidence from a Field Experiment in Online Supermarket Shopping," CEPR Discussion Papers 12014, C.E.P.R. Discussion Papers.
    2. Simon Alder & Lin Shao & Fabrizio Zilibotti, 2016. "Economic reforms and industrial policy in a panel of Chinese cities," Journal of Economic Growth, Springer, vol. 21(4), pages 305-349, December.
    3. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.

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