We examine how incumbents respond to the threat of entry by competitors (as distinct from how they respond to actual entry).We look specifically at passenger airlines, using the evolution of Southwest Airlines' route network to identify particular routes where the probability of future entry rises abruptly.We find incumbents cut fares significantly when threatened by Southwest's entry.Over half of Southwest's total impact on incumbent fares occurs before Southwest starts flying.These cuts are only on threatened routes, not those out of non-Southwest competing airports.The evidence on whether incumbents are seeking to deter or accommodate entry is mixed.

This paper empirically investigates the possible market power effects of vertical integration proposed in the theoretical literature on vertical foreclosure. It uses a rich data set of cement and ready‐mixed concrete plants that spans several decades to perform a detailed case study. There is little evidence that foreclosure is quantitatively important in these industries. Instead, prices fall, quantities rise, and entry rates remain unchanged when markets become more integrated. These patterns are consistent, however, with an alternative efficiency‐based mechanism. Namely, higher‐productivity producers are more likely to vertically integrate and are also larger, more likely to survive, and more likely to charge lower prices. We find evidence that integrated producers’ productivity advantage is tied to improved logistics coordination afforded by large local concrete operations. Interestingly, this benefit is not due to firms’ vertical structures per se: nonvertical firms with large local concrete operations have similarly high productivity levels.

There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.

Abstract After remaining flat for decades, labor productivity at U.S. restaurants surged 15% during the COVID pandemic. The surge has persisted. We explore this using mobile phone data tracking visits and spending at 100,000 limited-service restaurants. It cannot be explained by scale economies, market power, or mechanical consequences of COVID demand fluctuations. However, restaurants’ productivity growth is strongly correlated with the share of their customers visiting for 10 minutes or less, which rose considerably during COVID and persisted. This restaurant-level relationship between labor productivity and customer dwell time is large enough to explain most of the aggregate productivity increase.

This paper examines how sales force impacts competition and equilibrium prices in the context of a privatized pension market. We use detailed administrative data on fund manager choices and worker characteristics at the inception of Mexico's privatized social security system, where fund managers had to set prices (management fees) at the national level, but could select sales force levels by local geographic areas. We develop and estimate a model of fund manager choice where sales force can increase or decrease customer price sensitivity. We find exposure to sales force lowered price sensitivity, leading to inelastic demand and high equilibrium fees. We simulate oft proposed policy solutions: a supply‐side policy with a competitive government player and a demand‐side policy that increases price elasticity. We find that demand‐side policies are necessary to foster competition in social safety net markets with large segments of inelastic consumers.

We investigate learning by doing using detailed data from a major auto producer’s assembly plant. We focus on the acquisition, aggregation, transmission, and embodiment of the knowledge stock built through learning. We find that most knowledge was not retained by plant workers despite their importance as a learning conduit. This is consistent with the plant’s systems for productivity measurement and improvement. We further explore how learning at the hundreds of processes along the production line undergirds plantwide productivity. Our results shed light on how productivity gains accrue at the plant level and how firms apply managerial inputs to expand production.

Financial distress can disrupt a durable goods producer's provision of complementary goods and services such as warranties, spare parts and maintenance. This reduces consumers' demand for the core product, causing indirect costs of financial distress. We test this hypothesis in the market for used cars sold at wholesale auctions. An increase in a manufacturer's credit default swaps significantly decreases the prices of its cars at auction, especially cars with longer expected service lives. Our estimates imply substantial indirect costs of financial distress for car manufacturers. These costs have occasionally even exceeded the tax savings benefits for General Motors and Ford.

We use broad-based yet detailed data from the economy's goods-producing sectors to investigate firms' ownership of production chains. It does not appear that vertical ownership is primarily used to facilitate transfers of goods along the production chain, as is often presumed: roughly one-half of upstream establishments report no shipments to downstream establishments within the same firm. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intrafirm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that, after a change of ownership, an acquired establishment begins to resemble the acquiring firm along multiple dimensions. (JEL G32, G34, L14, L22, L60, M11)

Abstract We examine the within- and across-firm shipment decisions of tens of thousands of goods-producing and goods-distributing establishments. This allows us to quantify the normally unobservable forces that determine firm boundaries, that is, which transactions are mediated by ownership control, as opposed to contracts or markets. We find firm boundaries to be an economically significant barrier to trade: having an additional vertically integrated establishment in a given destination ZIP code has the same effect on shipment volumes as a 40% reduction in distance. These effects are larger for high value-to-weight products, faraway destinations, differentiated products, and IT-intensive industries.

The conventional wisdom for the healthcare sector is that idiosyncratic features leave little scope for market forces to allocate consumers to higher performance producers. However, we find robust evidence - across several different conditions and performance measures - that higher quality hospitals have higher market shares and grow more over time. The relationship between performance and allocation is stronger among patients who have greater scope for hospital choice, suggesting that patient demand plays an important role in allocation. Our findings suggest that healthcare may have more in common with "traditional" sectors subject to market forces than often assumed.