Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores. The increases in concentration are broad based, affecting most markets, products, and retail industries. We implement a new decomposition of the national Herfindahl Hirschman Index and show that despite similar trends, national and local concentration reflect different changes in the retail sector. The increase in national concentration comes from consumers in different markets increasingly buying from the same firms and does not reflect changes in local market power. We estimate a model of retail competition which links local concentration to markups. The model implies that the increase in local concentration explains one-third of the observed increase in markups.
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Local and National Concentration Trends in Jobs and Sales: The Role of Structural Transformation
November 2023
Working Paper Number:
CES-23-59
National U.S. industrial concentration rose between 1992-2017. Simultaneously, the Herfindhahl Index of local (six-digit-NAICS by county) employment concentration fell. This divergence between national and local employment concentration is due to structural transformation. Both sales and employment concentration rose within industry-by-county cells. But activity shifted from concentrated Manufacturing towards relatively un-concentrated Services. A stronger between-sector shift in employment relative to sales explains the fall in local employment concentration. Had sectoral employment shares remained at their 1992 levels, average local employment concentration would have risen by 9% by 2017 rather than falling by 7%.
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Supersize It: The Growth of Retail Chains and the Rise of the "Big Box" Retail Format
August 2008
Working Paper Number:
CES-08-23R
This paper documents and explains the recent rise of "big-box" general merchandisers. Data from the Census of Retail Trade for 1977-2007 show that general-merchandise chains grew much faster than specialist retail chains, and that general merchandisers that added the most stores also made the biggest increases to their product offerings. We explain these facts with a stylized model in which a retailer's scale economies interact with consumer gains from one-stop shopping to generate a complementarity between a retailer's scale and scope.
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The Role of Retail Chains: National, Regional, and Industry Results
December 2005
Working Paper Number:
CES-05-30
We use the establishment level data in the Longitudinal Business Database to measure changes in market structure in the U.S. Retail Trade sector during the period, 1976 to 2000. We use firm ownership information to construct measures of firm entry and exit and also to categorize four types of retail firms: single location, and local, regional, and national chains. We use detailed location data to examine market structure in both national and county markets. We summarize the county level results into three groups: metropolitan, micropolitan, and rural. We find that retail activity is increasingly occurring at establishments owned by chain firms, especially large national chains. On average, we find that all types of retail firms are increasing in size during the period. We also find that larger markets experience more firm turnover. Finally, we see that entry and exit rates vary across two-digit retail industries.
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THE AGGREGATE IMPACT OF ONLINE RETAIL
April 2014
Working Paper Number:
CES-14-23
To study the impact of online retail on aggregate welfare, I use a spatial model to calculate a new measure of store level retail productivity and each store's equilibrium response to increased competitive pressure from online retailers. The model is estimated on confidential store-level data spanning the universe of US retail stores, detailed local-level demographic data and shortest-route data between locations. From counterfactual exercises mimicking improvements in shipping and increased internet access, I estimate that improvements in online retail increased aggregate welfare from retail activities by 13.4 per cent. Roughly two-thirds of the increase can be attributed to welfare improvements holding fixed market shares, with the remainder due to reallocation. Surprisingly, 8.2 percent of firms actually benefit as they absorb market share from closed stores. Finally, I estimate that the proposed Marketplace Fairness Act would claw back roughly one-third of sales that would otherwise have gone to online retailers between 2007-12.
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Accounting for Trade Patterns
February 2024
Working Paper Number:
CES-24-07
We develop a quantitative framework for decomposing trade patterns. We derive price indexes that determine comparative advantage and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average appeal (including quality), and the dispersion of appeal-adjusted prices. We show that they are only weakly related to standard empirical measures of average prices. We find that 40 percent of the cross-section variation in comparative advantage, and 90 percent of the time-series variation, is accounted for by variety and average appeal, with less than 10 percent attributed to average prices.
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The Intangible Divide: Why Do So Few Firms Invest in Innovation?
February 2025
Working Paper Number:
CES-25-15
Investments in software, R&D, and advertising have surged, nearing half of U.S. private nonresidential investment. Yet just a few hundred firms dominate this growth. Most firms, including large ones, regularly invest little in capitalized software and R&D, widening this 'intangible divide' despite falling intangible prices. Using comprehensive US Census microdata, we document these patterns and explore factors associated with intangible investment. We find that firms invest significantly less in innovation-related intangibles when their rivals invest more. One firm's investment can obsolesce rivals' investments, reducing returns. This negative pecuniary externality worsens the intangible divide, potentially leading to significant misallocation.
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What Drives Stagnation: Monopsony or Monopoly?
October 2022
Working Paper Number:
CES-22-45
Wages for the vast majority of workers have stagnated since the 1980s while productivity
has grown. We investigate two coexisting explanations based on rising market power: 1. Monopsony, where dominant firms exploit the limited mobility of their own workers to pay lower wages; and 2. Monopoly, where dominant firms charge too high prices for what they sell, which lowers production and the demand for labor, and hence equilibrium wages economy-wide. Using establishment data from the US Census Bureau between 1997 and 2016, we find evidence of both monopoly and monopsony, where the former is rising over this period and the latter is stable. Both contribute to the decoupling of productivity and wage growth, with monopoly being the primary determinant: in 2016 monopoly accounts for 75% of wage stagnation, monopsony for 25%.
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Output Price And Markup Dispersion In Micro Data: The Roles Of Producer And Heterogeneity And Noise
August 1997
Working Paper Number:
CES-97-10
This paper provides empirical evidence on the extent of producer heterogeneity in the output market by analyzing output price and price-marginal cost markups at the plant level for thirteen homogeneous manufactured goods. It relies on micro data from the U.S. Census of Manufactures over the 1963-1987 period. The amount of price heterogeneity varies substantially across products. Over time, plant transition patterns indicate more persistence in the pricing of individual plants than would be generated by purely random movements. High-price and low-price plants remain in the same part of the price distribution with high frequency, suggesting that underlying time-invariant structural factors contribute to the price dispersion. For all but two products, large producers have lower output prices. Marginal cost and the markups are estimated for each plant. The markup remains unchanged or increases with plant size for all but four of the products and declining marginal costs play an important role in generating this pattern. The lower production costs for large producers are, at least partially, passed on to purchasers as lower output prices. Plants with the highest and lowest markups tend to remain so over time, although overall the persistence in markups is less than for output price, suggesting a larger role for idiosyncratic shocks in generating markup variation.
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The Rise of Specialized Firms
February 2024
Working Paper Number:
CES-24-06
This paper studies firm diversification over 6-digit NAICS industries in U.S. manufacturing. We find that firms specializing in fewer industries now account for a substantially greater share of production than 40 years ago. This reallocation is a key driver of rising industry concentration. Specialized firms have displaced diversified firms among industry leaders'absent this reallocation concentration would have decreased. We then provide evidence that specialized firms produce higher-quality goods: specialized firms tend to charge higher unit prices and are more insulated against Chinese import competition. Based on our empirical findings, we propose a theory in which growth shifts demand toward specialized, high-quality firms, which eventually increases concentration. We conclude that one should expect rising industry concentration in a growing economy.
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U.S. Market Concentration and Import Competition
August 2022
Working Paper Number:
CES-22-34
Many studies have documented that market concentration has risen among U.S. firms in recent decades. In this paper, we show that this rise in concentration was accompanied by tougher product market competition due to the entry of foreign competitors. Using confidential census data covering the universe of all firm sales in the U.S. manufacturing sector, we find that rising import competition increased concentration among U.S. firms by reallocating sales from smaller to larger U.S. firms and by causing firm exit. However, this increase in concentration was counteracted by the expansion of foreign firms, which reduced domestic firms' share of the U.S. market inclusive of foreign firms' sales. We find that once the sales of foreign exporters are taken into account, U.S. marketconcentration in manufacturing was stable between 1992 and 2012.
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