NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wyatt Brooks

University of Notre Dame

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NBER Working Papers and Publications

December 2016Growth Policy, Agglomeration, and (the Lack of) Competition
with Joseph P. Kaboski, Yao Amber Li: w22947
Industrial clusters are promoted by policy and generally viewed as good for growth and development, but both clusters and policies may 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 test 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, a firm's markup depends on its market share, but in the cartel, markups across firms converge and depend instead on the total market share of the cartel. Empirically, we validate the test using plants with common owners, and then test for collusion using data from Chinese manufacturing firms (1999-2009). We find strong evidence for non-com...
 
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