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A note on the estimation of competition-productivity nexus: a panel quantile approach

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Abstract

We study the impact of product market competition on total factor productivity in 462 US manufacturing sectors for the period 1958–2009 through the lens of a panel quantile regression analysis. We confirm that there is a nonmonotonic inverse-U relationship between competition and productivity. We argue that the turning point increases substantially as we move to the higher quantiles of the productivity distribution function. Our findings survive robustness checks under alternative competition measure and panel quantile estimator.

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Notes

  1. As we show that the residuals in none of the estimated models follow the normal distribution, the choice of MM-QR is supported to discover the relationship at the extreme quantiles of TFP growth rate. The estimated results based on Alejo et al. (2013) panel normality test are available upon request.

  2. The relevant indicator is calculated as: \(HHI50 = \sum\nolimits_{i = 1}^{50} {s_{it}^{2} \times 10,000}\) where s denotes the market share of each firm in industry i at time t.

  3. According to the EU horizontal merger guidelines, the European Commission is likely to identify horizontal competition concerns in a merger with a post-merger HHI above 2000 and a delta above 150. The Federal Trade Commission (FTC) also uses the HHI in merger analysis and classifies markets into three types: (a) unconcentrated markets: HHI below 1500, (b)mModerately concentrated markets: HHI between 1500 and 2500 and (c) highly concentrated markets: HHI above 2500.

  4. The results are available upon request.

  5. Specifically the ratio n/T is quite large (approximately 9 in our case).

  6. Specifically, we have used the lagged value of the CR4 (HHI50) and the squared CR4 (HHI50) as reported in the manuscript. The number of lags (L = 1) was chosen by minimizing the Akaike Information Criterion (AIC).

  7. To preserve space we do not present the estimated results of the rest covariates.

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Acknowledgements

I would like to expresses my gratitude to the Editor Professor Carlo Cambini for giving me the opportunity to revise and thus improve the paper. Special thanks also go to the two anonymous reviewers of the journal for their constructive comments and suggestions that enhanced the quality of this work. I would also like to thank Professor Santos Silva for his constructive comments along with the simulations STATA code for the Machado and Silva (2019) paper. Lastly, I am indebted to Professor Thanasis Stengos for enriching the paper with fruitful comments. All errors belong to the author. Usual disclaimer applies.

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Authors and Affiliations

  1. Department of Economics, University of Piraeus, Piraeus, Greece

    Michael L. Polemis

  2. Hellenic Competition Commission, Athens, Greece

    Michael L. Polemis

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  1. Michael L. Polemis
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Correspondence to Michael L. Polemis.

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Appendix

Appendix

See Table 4.

Table 4 Summary statistics per quantile
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Polemis, M.L. A note on the estimation of competition-productivity nexus: a panel quantile approach. J. Ind. Bus. Econ. 47, 663–676 (2020). https://doi.org/10.1007/s40812-020-00155-w

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  • DOI: https://doi.org/10.1007/s40812-020-00155-w

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