Productivity is generally regarded as a driver of economic growth and an indicator of a society's material well-being. However, many industrialized countries have experienced declining productivity growth and widening productivity gaps in recent decades. The objective of this project was to conduct a detailed investigation of the role that a firm's competitive environment plays in its own productivity development. The driving research question: is increasing industry concentration - and the accompanying expected decline in competition - associated with lower productivity? And if so, what is driving this effect?

In a first step, the project team estimated price margins for German firms for the years 2007 to 2016 and then contrasted these with the productivity level of the firms. The correlation of markups and productivity estimated in this way represented the combined effect. The addition of company data from the ZEW's Mannheim Innovation Panel in a second step allowed the project team to take a differentiated look at the direct (e.g. via management practices) vs. indirect (via changes in innovation activities) influences of markups on productivity.

The finding from this analysis that markups have strong direct effects (compared to innovation-oriented indirect effects) in all sectors except services underscores the potential of competition policy measures aimed at mitigating productivity declines. Therefore, in order to conduct a sound and insightful analysis of competition policy measures, it is always necessary to conduct a joint analysis of both effects is always necessary.

Selected Publications

Allowance

Bertelsmann Stiftung, Gütersloh, DE

Project duration

01.04.2019 - 31.12.2019

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