Growth Policy, Agglomeration, and (the Lack of) Competition
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-competitive pricing within a subset of industrial clusters, and we find the level of non-competitive pricing is about four times higher in Chinese special economic zones than outside those zones.
We are thankful for comments received Timo Boppart, Gaurav Khanna, David Atkin, Oleg Itshkhoki, and participants in presentations at: BREAD, Cornell University; Dartmouth College; the Federal Reserve Bank of Chicago; HKUST IEMS/World Bank Conference on Urbanization, Structural Change, and Employment; the London School of Economics/University College of London; NEUDC; Princeton University; SED; SITE; the Taipei International Conference on Growth, Trade and Development; the University of Cambridge; the World Bank; and Yale University. We are thankful to the International Growth Centre and the HKUST IEMS for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
- Firms in some Chinese industrial clusters, especially in special economic zones (SEZs), appear to engage in non-competitive pricing...