This paper develops a dynamic industry model in which firms compete to acquire customers over time by disseminating information about themselves under the presence of random shocks to their efficiency. The properties of the model's stationary equilibrium are related to empirical regularities on firm and industry dynamics. As an application of the model, the effects of a decline in the cost of information dissemination on firm and industry dynamics are explored.
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The Industry Life-Cycle of the Size Distribution of Firms
July 2005
Working Paper Number:
CES-05-10
This paper analyzes the evolution of the distributions of output and employment across firms in U.S. manufacturing industries from 1963 until 1997. The evolutions of the employment and output distributions differ, but display strong inter-industry regularities, including that the nature of the evolution depends whether the industry is experiencing growth, shakeout, maturity, or decline. The observed patterns have implications for theories of industry dynamics and evolution.
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An Anatomy of U.S. Firms Seeking Trademark Registration
April 2018
Working Paper Number:
CES-18-22
This paper reports on the construction of a new dataset that combines data on trademark applications and registrations from the U.S. Patent and Trademark Office with data on firms from the U.S. Census Bureau. The resulting dataset allows tracking of various activity related to trademark use and protection over the life-cycle of firms, such as the first application for a trademark registration, the first use of a trademark, and the renewal, assignment, and cancellation of trademark registrations. Facts about firm-level trademark activity are documented, including the incidence and timing of trademark registration filings over the firm life-cycle and the connection between firm characteristics and trademark applications. We also explore the relation of trademark application filing to firm employment and revenue growth, and to firm innovative activity as measured by R&D and patents.
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WHO DO UNIONS TARGET? UNIONIZATION OVER THE LIFE-CYCLE OF U.S. BUSINESSES
February 2014
Working Paper Number:
CES-14-09R
What type of businesses do unions target for organizing and when? A dynamic model of the union organizing process is constructed to answer this question. A union monitors establishments in an industry to learn about their productivity, and decides which ones to organize and when. An establishment becomes unionized if the union targets it for organizing and wins the union certification election. The model predicts two main selection effects: unions target larger and more productive establishments early in their life-cycles, and among the establishments targeted, unions are more likely to win elections in smaller and less productive ones. These predictions find support in union certification elections data for 1977-2007 matched with data on establishment characteristics.
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Wage Dynamics along the Life-Cycle of Manufacturing Plants
August 2011
Working Paper Number:
CES-11-24R
This paper explores the evolution of average wage paid to employees along the life-cycle of a manufacturing plant in U.S. Average wage starts out low for a new plant and increases along with labor productivity, as the plant survives and ages. As a plant experiences productivity decline and approaches exit, average wage falls, but more slowly than it rises in the case of surviving new plants. Moreover, average wage declines slower than productivity does in failing plants, while it rises relatively faster as productivity increases in surviving new plants. These empirical regularities are studied in a dynamic model of labor quality and quantity choice by plants, where labor quality is reflected in wages. The model's parameters are estimated to assess the costs a plant incurs as it alters its labor quality and quantity in response to changes in its productivity over its life-cycle.
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On The Role of Trademarks: From Micro Evidence to Macro Outcomes
March 2023
Working Paper Number:
CES-23-16R
What are the effects of trademarks on the U.S. economy? Evidence from comprehensive micro data on trademark registrations and outcomes for U.S. employer firms suggests that trademarks protect firm value and are linked to higher firm growth and marketing activity. Motivated by this evidence, trademarks are introduced in a general equilibrium framework to quantify their aggregate effects. Firms invest in product quality and engage in both informative and persuasive advertising to build a customer base subject to depreciation. Persuasive advertising induces a perception of higher quality. Firms can register trademarks to reduce customer depreciation and enhance product awareness. The model's predictions about trademark registrations, firm growth, and advertising expenditures align with the empirical evidence. The analysis shows that, compared to the counterfactual economy without trademarks, the U.S. economy with trademarks generates higher average product quality but lower variety, ultimately resulting in greater welfare and higher industry concentration. While informative advertising improves welfare, persuasive advertising reduces it. Nevertheless, the positive welfare impact of trademarks outweighs the negative effects of persuasive advertising.
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IPO Waves, Product Market Competition, and the Going Public Decision: Theory and Evidence
March 2012
Working Paper Number:
CES-12-07
We develop a new rationale for IPO waves based on product market considerations. Two firms, with differing productivity levels, compete in an industry with a significant probability of a positive productivity shock. Going public, though costly, not only allows a firm to raise external capital cheaply, but also enables it to grab market share from its private competitors. We solve for the decision of each firm to go public versus remain private, and the optimal timing of going public. In equilibrium, even firms with sufficient internal capital to fund their new investment may go public, driven by the possibility of their product market competitors going public. IPO waves may arise in equilibrium even in industries which do not experience a productivity shock. Our model predicts that firms going public during an IPO wave will have lower productivity and post-IPO profitability but larger cash holdings than those going public off the wave; it makes similar predictions for firms going public later versus earlier in an IPO wave. We empirically test and find support for these predictions.
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The Role of Cities: Evidence From the Placement of Sales Offices
January 2002
Working Paper Number:
CES-02-02
What is the force of attraction of cities? Leading explanations include the advantages of a con-centrated market and knowledge spillovers. This paper develops a model of firm location decisions in which it is possible to distinguish the importance of the concentrated-market motive from other motives, including knowledge spillovers. A key aspect of the model is that it allows for the firm to choose multiple locations. The theory is applied to study the placement of manufacturing sales offices. The implications of the concentrated-market motive are found to be a salient feature of U.S. Census micro data. The structural parameters of the model are estimated. The concentrated-market motive is found to account for approximately half of the concentration of sales offices in large cities.
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The Industrial Revolution in Services
October 2021
Working Paper Number:
CES-21-34
The U.S. has experienced an industrial revolution in services. Firms in service industries, those where output has to be supplied locally, increasingly operate in more markets. Employment, sales, and spending on fixed costs such as R&D and managerial employment have increased rapidly in these industries. These changes have favored top firms the most and have led to increasing national concentration in service industries. Top firms in service industries have grown entirely by expanding into new local markets that are predominantly small and mid-sized U.S. cities. Market concentration at the local level has decreased in all U.S. cities but by significantly more in cities thatwere initially small. These facts are consistent with the availability of a new menu of fixed-cost-intensive technologies in service sectors that enable adopters to produce at lower marginal costs in any markets. The entry of top service firms into new local markets has led to substantial unmeasured productivity growth, particularly in small markets.
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IT and Beyond: The Contribution of Heterogenous Capital to Productivity
December 2004
Working Paper Number:
CES-04-20
This paper explores the relationship between capital composition and productivity using a unique and remarkably detailed data set on firm-level, asset-specific investment in the U.S. Using cross-sectional and longitudinal regressions, I find that among all types of capital, only computers, communications equipment, software, and office building are associated (positively) with current and subsequent years' multifactor productivity. The link between offices and productivity, however, is shown to be due to the correlation between the use of offices and organizational capital. In contrast, the link between ICT equipment and productivity is robust to a number of controls and appears to be part causal effect and part reflection of the correlation between ICT and firm fixed (or slow-moving) effects. The implied marginal products by capital type are derived and compared to official data on rental prices; substantial differences exist for a number of key capital types. Lastly, I provide evidence of complementaries and substitutabilities among capital types ' a rejection of the common assumption of perfect substitutability ' and between particular capital types and labor.
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