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Effect of International Competition on Firm Productivity and Market Power

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  • Jan De Loecker
  • Johannes Van Biesebroeck

Abstract

We propose a framework to evaluate the potential impact of international competition on firm performance and highlight two points. First, it is important to consider effects on productive efficiency and market power in an integrated framework. The popular concept of (revenue) TFP combines both effects which can lead to problems of estimation and interpretation. Second, greater international competition enlarges the relevant market and can affect both the number and the type of competitors a firm faces, as well as the nature of competition. While it is possible that firms respond by adjusting their production operations, pricing adjustments are all but guaranteed. We contrast three estimation approaches that start, respectively, from the demand side, the product extensive margin, and the production side. We conclude with a few avenues for future research.

Suggested Citation

  • Jan De Loecker & Johannes Van Biesebroeck, 2016. "Effect of International Competition on Firm Productivity and Market Power," NBER Working Papers 21994, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21994
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    4. Serge Rey & Catherine Ris, 2018. "Sectoral labour productivity and economic competitiveness in New Caledonia," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 499, pages 29-53.
    5. Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01470696, HAL.
    6. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    7. Franz Haider & Robert Kunst & Franz Wirl, 2021. "Total factor productivity, its components and drivers," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(2), pages 283-327, May.
    8. Lionel Fontagné & Philippe Martin & Gianluca Orefice, 2017. "The International Elasticity Puzzle Is Worse Than You Think," Working Papers hal-01470696, HAL.
    9. Djolaud, Guy, 2022. "Import Penetration of Low Quality Products : Markups Implications," MPRA Paper 114611, University Library of Munich, Germany.
    10. Xinheng Liu & Ziyuan Pan & Dongli Fang, 2023. "Agglomeration, resource reallocation and domestic value‐added ratio in exports," Growth and Change, Wiley Blackwell, vol. 54(1), pages 182-213, March.
    11. Quint Wiersma, 2019. "The impact of WTO accession on Chinese firms' product and labor market power," Tinbergen Institute Discussion Papers 19-037/V, Tinbergen Institute.

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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