DP12536 Declining Competition and Investment in the U.S.

Author(s): German Gutierrez, Thomas Philippon
Publication Date: December 2017
Keyword(s): Concentration, investment, Markups
JEL(s):
Programme Areas: Industrial Organization, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12536

We argue that the increasing concentration of US industries is not an efficient response to changes in technology and reflects instead decreasing domestic competition. Concentration has risen in the U.S. but not in Europe; concentration and productivity are negatively related; and industry leaders cut investment when concentration increases. We then establish the causal impact of competition on investment using Chinese competition in manufacturing, noisy entry in the late 1990s, and discrete jumps in concentration following large M&As. We find that more (less) competition causes more (less) investment, particularly in intangible assets and by industry leaders.