Mind Your Own Business
Trends in Competition in the United States: What Does the Evidence Show?
Carl Shapiro & Ali Yurukoglu
NBER Working Paper, July 2024
Abstract:
Has the United States economy become less competitive in recent decades? One might think so based on a body of research that has rapidly become influential for antitrust policy. We explain that the empirical evidence relating to concentration trends, markup trends, and the effects of mergers does not actually show a widespread decline in competition. Nor does it provide a basis for dramatic changes in antitrust policy. To the contrary, in many respects the evidence indicates that the observed changes in many industries are likely to reflect competition in action. We highlight research that points to targeted interventions that can enable antitrust enforcement policy to better promote and protect competition. Throughout the paper, we identify open questions and opportunities for future research in the cross-industry evidence-at-scale paradigm, the industry-specific study paradigm, and their intersection.
Development Approval Timelines, Approval Uncertainty, and New Housing Supply: Evidence from Los Angeles
Stuart Gabriel & Edward Kung
University of California Working Paper, June 2024
Abstract:
We provide credible estimates of the effect of duration and uncertainty in local regulatory approval times on the rate of housing production. The analysis derives from a novel dataset of development timelines for all multifamily housing projects permitted in the City of Los Angeles between 2010 and 2022. As a lower bound, simply by pulling forward in time the completion of already started projects, we estimate that reductions of 25% in approval time duration and uncertainty would increase the rate of housing production by 11.9%. If we also account for the role of approval times in incentivizing new development, we estimate that the 25% reduction in approval time would increase the rate of housing production by a full 33.0%. Both the expected value and the uncertainty in approval times are salient to incentivizing new development. The results provide new evidence that local approval processes are a significant driver of housing supply and reinforce the notion that municipal regulatory reform is an important component of housing reform.
The Political Actors Behind Airbnb Bans: Evidence from New York City
Alexander Marsella et al.
Clemson University Working Paper, June 2024
Abstract:
We examine the gains and involvement of the hotel industry in New York City's Airbnb ban. Building on regulatory capture theory, we show that the hotel industry was better positioned to overcome the collective action problems associated with lobbying. As a result, we find that the hotel industry spent an order of magnitude more than Airbnb in political contributions, particularly prior to the ban. We further estimate the gains that accrued to the hotel industry as a result of this ban. We find that hotels' average daily rates increased by $36 and revenue increased by roughly $2.5 billion per year. We find no evidence that the occupancy rate was affected, suggesting that the revenue increase was mostly due to the increase in daily rates.
Digital Advertising and Market Structure: Implications for Privacy Regulation
Daniel Deisenroth et al.
NBER Working Paper, July 2024
Abstract:
Digital advertising, which uses consumer data to target ads to users, now accounts for most of global ad expenditures. Privacy concerns have prompted regulations that restrict the use of personal data. To inform these policy debates, we develop an equilibrium model of advertising and market structure to analyze the impact of privacy regulation on market outcomes. We test the model’s predictions using the launch of Apple’s App Tracking Transparency feature, which created a natural experiment that limited the use of consumer data. Leveraging data from all U.S. advertisers on Meta combined with offline administrative data, we find that reductions in digital ad effectiveness led to decreases in investments in advertising, increases in market concentration, and increases in product prices. These effects are economically meaningful in magnitude and suggest potential harms to both firms and consumers from privacy regulation.
Income Mobility, Automation and Occupational Licensing
Vincent Geloso, Alicia Plemmons & Pradyot Sharma
George Mason University Working Paper, June 2024
Abstract:
Technological change has long been tied with distributional concerns due to displacement against certain skills on labor markets. Short-run dislocations could create scarring in the long-run. For example, shifts against less skilled workers with children could limit their ability to improve the inter-generational income mobility of their children. However, the existing literature rarely emphasizes the possibility that the ill-effects of technological change are conditional on government regulations that limit the ability of workers to rapidly adjust thus creating the scarring. In this article, we document the importance of these regulations by focusing on changes in occupational licensing of low-income professions, exposure to industrial automation in the United States since the 1980s and inter-generational income mobility. We find that a significant share of the prediction of falling income mobility tied to automation are actually tied to changes in occupational licensing. Areas that experienced labor market deregulation and high exposure to automation suffered far less than areas that did not engage in deregulation.
70 years of US corporate profits
Simcha Barkai & Seth Benzell
Journal of Corporate Finance, August 2024
Abstract:
We construct and compare aggregate measures of profits for the U.S. non-financial corporate sector over the period 1946–2016. The measures commonly show that the profit share is declining from 1946 to the early 1980s and has been increasing since. As a share of gross value added, profits today are higher than they were in 1984, but lower than their value in the years after World War II.
Regulating the Direction of Innovation
Joshua Gans
NBER Working Paper, July 2024
Abstract:
This paper examines the regulation of technological innovation direction under uncertainty about potential harms. We develop a model with two competing technological paths and analyze various regulatory interventions. Our findings show that market forces tend to inefficiently concentrate research on leading paths. We demonstrate that ex post regulatory instruments, particularly liability regimes, outperform ex ante restrictions in most scenarios. The optimal regulatory approach depends critically on the magnitude of potential harm relative to technological benefits. Our analysis reveals subtle insurance motives in resource allocation across research paths, challenging common intuitions about diversification. These insights have important implications for regulating emerging technologies like artificial intelligence, suggesting the need for flexible, adaptive regulatory frameworks.
Exploring the nexus of occupational licensing and the shadow economy: Evidence from U.S. states
Daniel Gyimah & James Saunoris
Contemporary Economic Policy, forthcoming
Abstract:
This study looks at the relationship between the prevalence of state-level shadow economies and the extent of labor regulations specific to occupational licensing. Occupational licensing leads to higher prices in the formal sector and barriers to entry into formal sector employment, therefore incentivizing individuals to migrate their demand and supply to the underground sector. Using state-level panel data for the 50 U.S. states from 2001 to 2019 and two-stage least squares estimation, we find a positive relationship between occupational licensing in a state and the size of its shadow economy. These results are robust to various considerations.
Rising Markups and the Role of Consumer Preferences
Hendrik Döpper et al.
NBER Working Paper, July 2024
Abstract:
We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. Using detailed data on prices and quantities for products in more than 100 distinct product categories, we estimate flexible demand systems and recover markups under an assumption that firms set prices to maximize profit. Our empirical strategy obtains a panel of consumer preferences and marginal costs based on the estimation of separate random coefficient models by category and year. We find that markups increased by about 30 percent on average over the sample period. The change is primarily attributable to decreases in marginal costs, as real prices only increased slightly from 2006 to 2019. Our estimates indicate that consumers have become less price sensitive over time.
Innovation Spillovers across U.S. Tech Clusters
Xavier Giroud, Ernest Liu & Holger Mueller
NBER Working Paper, July 2024
Abstract:
The vast majority of U.S. inventors work for firms that also have inventors and plants in other tech clusters. Using merged USPTO–U.S. Census Bureau plant-level data, we show that larger tech clusters not only make local inventors more productive but also raise the productivity of inventors and plants in other clusters, which are connected to the focal cluster through their parent firms' networks of innovating plants. Cross-cluster innovation spillovers do not depend on the physical distance between clusters, and plants cite disproportionately more patents from other firms in connected clusters, across large physical distances. To rationalize these findings, and to inform policy, we develop a tractable model of spatial innovation that features both within- and cross-cluster innovation spillovers. Based on our model, we derive a sufficient statistic for the wedge between the social and private returns to innovation in a given location. Taking the model to the data, we rank all U.S. tech clusters according to this wedge. While larger tech clusters exhibit a greater social-private innovation wedge, this is not because of local knowledge spillovers, but because they are well-connected to other clusters through firms' networks of innovating plants. In counterfactual exercises, we show that an increase in the interconnectedness of U.S. tech clusters raises the social-private innovation wedge in (almost) all locations, but especially in tech clusters that are large and well-connected to other clusters.
Half Banked: The Economic Impact of Cash Management in the Marijuana Industry
Elizabeth Berger & Nathan Seegert
Journal of Finance, August 2024, Pages 2759-2796
Abstract:
We investigate the economic value of cash management. In the legal marijuana industry, where only half of businesses have access to cash management services from a financial institution, we examine dispensary profitability using administrative and survey data. Our results show that businesses with cash management charge higher retail prices (8.3%), pay lower wholesale prices (7.3%), and have higher sales volume (19%). Together, these advantages create a 40% increase in profitability. These results support our model in which reputational capital and administrative costs drive profitability regardless of whether national banks, credit unions, or fintech provide the cash management functions.
Do Mergers and Acquisitions Improve Efficiency? Evidence from Power Plants
Mert Demirer & Ömer Karaduman
NBER Working Paper, July 2024
Abstract:
Using rich data on hourly physical productivity and thousands of ownership changes from US power plants, we study the effects of acquisitions on efficiency and underlying mechanisms. We find a 2% average increase in efficiency for acquired plants, beginning five months after acquisitions. Efficiency gains rise to 5% under direct ownership changes, with no significant change when only parent ownership changes. Investigating the mechanisms, three-quarters of the efficiency gain is attributed to increased productive efficiency, while the rest comes from dynamic efficiency through changes in production allocation. Our evidence suggests that high-productivity firms buy underperforming assets from low-productivity firms and make them as productive as their existing assets through operational improvements. Finally, acquired plants improve their performance beyond efficiency by increasing output and reducing outages.