Product market competition and corporate investment: An empirical analysis

Using both SIC-based and text-based measures of industry concentration, we show that firms operating in competitive industries invest significantly more in both physical capital and R&D compared to their peers in concentrated industries. This result is robust across a wide range of control variables and methodologies, including propensity score matching, an instrumental variable approach, and a difference-in-differences analysis. Our conservative estimates indicate a 14% ($110 billion) loss in capital expenditure over the past decade attributable to increased levels of concentration. Additionally, controlling for import competition and stronger corporate governance does not alter the main findings. These results have policy implications, suggesting that investment and innovation—and hence economic growth—may be adversely affected in the current era of increasing industry concentration and declining competition.