Grant Category

Market Structure

Are markets becoming less competitive and, if so, why, and what are the larger implications?

The premise of a market economy is that broad-based economic gains come from a well-functioning market. Yet there is evidence that growing economic inequality is undermining our society’s ability to act collectively in pursuit of the nation’s welfare. When stakeholders who comprise economic systems subvert institutions for their own gain, the economy loses. If markets are becoming less competitive, the resulting increase in monopoly power could be contributing to these problems.

New data-driven research provides more evidence that markets are increasingly concentrated and that, in many cases, this is indicative of a reduction in competition. Markups, the traditional measure of monopoly power, are growing. Investment and new business start-ups have been falling steadily even as corporate profits are rising. At the same time, labor income as a share of national income is falling. Does the economy suffer from a monopoly problem and, if so, why, and what are the larger implications?

We are interested in research from an aggregate perspective, which has been common in the macroeconomic and labor literatures, as well as sectoral analysis that has been the focus of industrial organization literatures.

  • The causes of increased concentration
  • Consequences of concentration for productivity, investment, and economic growth
  • Consequences of concentration for labor markets and power

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Concentration and Racial Equity in Meat Processing

Grant Year: 2022

Grant Amount: $15,000

Grant Type: doctoral

This project seeks to provide some of the first causal evidence on how concentration in the meat-processing industry affects producers, workers, and consumers across racial and income groups in the United States. Rising concentration has been especially salient in the meat-processing industry, and recent research connects market power in the product market with monopsony power in the labor market. This project will build and expand on that literature by measuring the effect of consolidation by meat processors on monopoly power in the input and product markets, and monopsony power in the labor market, and then assessing what the implications of these market conditions are on racial inequality, specifically farmer profits, conditions for workers, and prices for consumers.

Exploring disparate impact in online retailing

Grant Year: 2022

Grant Amount: $85,000

Grant Type: academic

This project studies discrimination in online retail grocery stores. Do different consumers get charged a different price based on their perceived race? To answer this question, the author will implement a massive data collection exercise using web scraping. The data will combine firm-level data on products and prices with geography and aggregate socioeconomic indicators. This provides information on the underlying consumers in those areas. In the first phase of the project, the shopper’s race is based solely on geography. Future phases of the project will attempt to use browsing history to find racial differences in the shoppers. Web crawlers will be used to collect prices based on location to understand how online prices faced by consumers vary across socioeconomic and racial groups (imputed based on location). This research will identify whether online shopping allows retailers to price discriminate in ways that are harder to do in person.

Startups’ Common Ownership and Competition in Technology Markets

Grant Year: 2022

Grant Amount: $15,000

Grant Type: doctoral

This project will examine the effect of common ownership of technology startups by venture capitalists on those firms’ outcomes, such as shutdowns, exits via mergers or acquisitions, and Initial Public Offerings. The author seeks to contribute to the literature on how common ownership may impact competition and innovation by studying spillovers among technology startups in the portfolios of multiple venture capital firms. It will explore two questions: Do venture capitalists’ common ownership of technology startups have anticompetitive effects, and by affecting startups’ outcomes, can common ownership impact the market structure of technology industries? The focus on the technology sector allows the author to look at competition between like firms. Because venture capitalists have a lot of decision-making power, the author theorizes that the effects could be strong since venture capital firms focus on the innovation pipeline. Therefore, the project expects to speak to how competition can be stifled in the seed stages of venture funding. The project will proceed in three stages: Develop a stylized analytical model to highlight the main incentives at play; present reduced-form evidence on the effects of common ownership on startups’ outcomes; and develop a structural matching model of venture capital firms and startups.

The Impact of Natural Disasters on Firm and Labor Dynamics

Grant Year: 2022

Grant Amount: $15,000

Grant Type: doctoral

This project will explore the impact of natural disasters on small businesses and whether effects differ depending on the demographics of the entrepreneurs running those businesses. Understanding how the composition of local economies changes after disasters because of the demise of some firms and the startup of others can explain a lot about what makes a particular place more or less resilient. Research shows that there is a lot of startup activity following a natural disaster, but this could be misleading if it is generated from rebuilding and doesn’t fully factor in displaced workers or shuttered businesses, which will have larger long-term effects. This project will look at the impact of natural disasters on firms’ entry/exit, survival, and financial performances. It will also look at whether these effects vary by entrepreneur demographics, their socioeconomic backgrounds, the types of firms and in which industries, market power, and competitive setting.

The Price Effects of Market Power

Grant Year: 2022

Grant Amount: $75,000

Grant Type: academic

This project takes a macroeconomic approach to market power. The authors will use U.S. Bureau of Labor Statistics microdata on monthly prices to study how market power affects prices for the whole U.S. economy, not just one sector. Past work has looked at mark-ups and concentration as a proxy for price, but in principle, this could help address the fundamental question of whether market power or efficiency is driving increased mark-ups. This project would provide new evidence on the linkage between market concentration and margins across industries and within industries. It would also provide evidence on how import cost shocks lead to the pass-through of those shocks to the prices paid by final consumers. The authors plan to infer market power from the degree of pass-through. A main innovation in this study is the use of novel data, which record price for different sectors.

Consolidation in Drug Markets: Impact on Prices and Access

Grant Year: 2022

Grant Amount: $75,000

Grant Type: academic

This project aims to provide an exhaustive analysis of how pharmaceutical mergers and acquisitions affect market competition and prices of patent-protected branded drugs involved in the deal. So far, little direct evidence exists about the impact of mergers and acquisitions activity on pharmaceutical market outcomes, partly because reliable data on prices and ownership of drugs is very difficult to obtain. The scholars will assemble a comprehensive dataset tracking the ownership of new products. This will be one of the major contributions of this project since there are no data sources that systematically track the marketing rights of each pharmaceutical product. The project examines whether prices, sales, and formulary coverage of acquired products increase after acquisition and, if so, what types of acquisitions are more likely to lead to changes in these market outcomes. This project will be the first to examine the differences in how list and net prices of pharmaceuticals respond to changes in market structure and competition. It also asks why market outcomes change. Economic theory predicts that within-market (substitute products) mergers will lead to higher prices. More recent evidence suggests that cross-market (noncompeting products) mergers also may generate upward pricing pressure in markets. The project tests these theories in the context of the pharmaceutical market. It also explores alternative explanations, such as shifts in marketing strategy, by incorporating advertising data into the analysis. Finally, the project also investigates anticompetitive effects of acquisitions in the patent-protected branded drugs market and what types of deals are more likely to have an anticompetitive effect.

Experts

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Nancy Folbre

University of Massachusetts, Amherst

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Elton Mykerezi

University of Minnesota

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John Coglianese

Board of Governors of the Federal Reserve System

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Miguel Antón

University of Navarra

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Julia Goodman

OHSU-PSU School of Public Health

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