Brown Bag Seminar Industrial Economics

How do shocks to competition in one sector propagate through the value chain? Using firm-level panel data from 25 countries, we study this question by estimating the value chain effects of the formation and breakups of collusive cartels. We match the names of cartel firms to a large firm-level panel and  generate time-varying measures of exposure to cartelized sectors’ linkages in the production network for firms in upstream, downstream, and complementary sectors. We then leverage quasi-random changes in exposure to cartelized sectors triggered by the dates of cartel formation and their dissolution by competition authorities to study the value chain effects. We find that the negative shocks to competition generated by cartel conduct have significant negative effects on the output, investment, employment, and profits of downstream firms and firms in complementary sectors, while upstream firms may capture part of the cartel rents. We document significant sectoral heterogeneity in these effects. Our results provide new cross-country firm-level evidence on value-chain spillovers of de facto competition enforcement and underscore the importance of strong antitrust institutions.

(joint with Chiara Criscuolo, Leonard le Roux, and Antonis Tsiflis)