Industrial agglomeration policies may limit competition. We develop, validate, and apply a novel approach for measuring competition based on the comovement of markups and market shares among firms in the same location and industry. Then we develop a model of how this reduction in competition affects aggregate income. We apply our approach to the well-known special economic zones (SEZs) of China. We estimate that firms in SEZs exhibit cooperative pricing almost three times as intensively as firms outside SEZs. Nevertheless, we model the aggregate consequences of SEZs and find positive effects because markups become higher but also more equal.
Brooks, Wyatt J., Joseph P. Kaboski, and Yao Amber Li.
"Agglomeration, Misallocation, and (the Lack of) Competition."
American Economic Journal: Macroeconomics,
Firm Behavior: Empirical Analysis
Industry Studies: Manufacturing: General
Industrialization; Manufacturing and Service Industries; Choice of Technology
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
Socialist Systems and Transitional Economies: Urban, Rural, and Regional Economics
Socialist Enterprises and Their Transitions
Other Spatial Production and Pricing Analysis