R D intensity has become a strategic decision for companies to sustain competitiveness and achieve long-term growth. And as institutional ownership interests in listed firms are rising, influence of their actions and decisions on investee companies’ R D has become a major concern. While earlier studies that have explored the R D—institutional ownership relation have mainly focused on proportional holdings without considering the stability of institutional holdings. This paper investigates the effect of stability in institutional holdings on R D activities of the investee company. Stability in institutional holdings may influence investors’ actions which in turn affects their innovation governance practices. Employing a data of 2686 firm-years of Indian listed companies from 2013 to 2019, Empirical evidence in general reveal that increases in stability of institutional equity positions leads to increase in firms’ R D. While the effect of stability in equity holdings of foreign as well as Domestic institutions on R D is positive, the effect of stability in foreign holdings is more pronounced than domestic holdings. Furthermore, the results show that institutional holdings with longer investment horizons affects the firms’ R D intensity positively.
This paper extends the Boone indicator of market-level competition by introducing a new firm-level competition measure, Marginal Relative Profitability (MRP). MRP captures the firm-specific elasticity between profits and efficiency, measured relative to other market participants. A firm exerts strong competitive pressure on its peers when a small improvement in its efficiency, measured through marginal costs, leads to a disproportionately large increase in its profits. We apply MRP to banks operating in the loan markets of the four largest euro area countries. Many banks exhibit a low MRP, resulting in a left-skewed distribution of MRP. This indicates that, for these banks, efficiency gains do not generate substantial profit increases, thereby weakening their incentives to improve efficiency. In a second application, we examine the MRP of weak banks specifically. The new MRP measure complements existing firm-level competition indicators and offers a valuable framework for enriching future analyses of market power and competitive behaviour.
Motivated by a recent acquisition in the live music events industry, this paper discusses the effects of and the incentives for vertical integration in the presence of multiple complementary inputs. Among other inputs, a live music events promoter needs access to a venue and a contract with an artist in order to produce a live show. Before the proposed acquisition, the venue, a monopolist arena, was already controlled by some promoters. After the operation, the promoter with control over the arena also has some control over a significant number of artists (indirectly, either through managers, through influence over agents or through the acquisition of tours). We show that when the arena is free to set prices, the vertically integrated firm has no incentive to limit competing promoters’ access to "its" artists: the arena price is a sufficient instrument to implement an input foreclosure strategy. However, if there are constraints with respect to the arena price, the vertically integrated firm may have the incentive to deny competing promoters access to artists, and this alternative input foreclosure strategy is detrimental for consumer welfare.
We study a framework where firms have the possibility to adopt a technology that reduces marginal cost. The technology may be protected by a patent or it may be competitively supplied, reflecting a situation where the patent has expired. The same technology is available to all firms such that the decision to acquire it is influenced by the number of competitors that adopt the technology. Firms end up making different decisions, which leads to varying adoption rates as an equilibrium outcome, thus providing a rationale for an endogenously determined size distribution of firms. Too little adoption does not occur in equilibrium, except when markets are highly concentrated. Excessive adoption is more likely to occur under perfectly competitive supply than under monopolistic supply of the technology. Increases in demand, a lower degree of price sensitivity and a higher marginal cost reduction rate of the technology strengthen both private and social incentives for adoption. A reduction in the degree of market concentration leads to lower adoption rates, both in equilibrium and under the socially optimal outcome.
In this article, we analyze how the quality elasticity of marginal cost affects the product-quality choices of a firm producing a low-quality product and the profit differential between high- and low-quality-product firms, given that markets are uncovered and the quality of the product produced by the high-quality firm is given. We find that even when elasticity is elastic, the firm producing the low-quality product does not always reduce the quality of the product as elasticity increases. Furthermore, when elasticity is high, the low-quality-product firm obtains more profit than the high-quality-product firm. Finally, the socially preferable product quality is always greater than the profit-maximizing product quality.
We assess the impact of industrial policy in Korea, specifically, the Heavy and Chemical Industrialization (HCI) Drive (1973–1979). Using the HCI Drive as the treatment, we employ the synthetic control method and data for a large sample of countries for the period 1960–2018. We construct a synthetic Korea using data from countries sharing similar characteristics to Korea during the pre-treatment period (1960–1972). We then compare the per capita GDP levels of actual and synthetic Korea during the post-treatment period. The results indicate that the HCI Drive has more than quadrupled Korea’s per capita GDP compared to the counterfactual by the end of the 1980s, and still 2.4 times the counterfactual in 2018. Placebo tests show that our results are robust. Based on the large positive treatment effect of the HCI Drive, we argue that the government’s industrial policy was highly effective in raising the living standards of Korea in the long run.
This paper explores partial privatization by merger of an inefficient public leader. It uniquely considers the merger with either a foreign or a domestic private follower in a market that includes both. Mergers with either firm can increase both welfare and private profit. When the followers compete to be the merger partner by each offering the public firm a private ownership share, numerical analysis convincingly suggests that the domestic firm always prevails. Its merger provides greater domestic welfare. Moreover, we demonstrate that for nearly all degrees of cost inefficiency, the public firm prefers merger with the domestic firm to unilateral privatization. We argue these findings help explain why mergers of public firms with domestic private firms appear extremely common.
In order to explore the impacts of China’s intellectual property protection on total factor productivity (TFP) and its influence mechanisms from micro-firm and middle-industry levels, based on the data of Chinese Industrial Enterprise Database from 2001 to 2013, we select four indicators to systematically measure the degree of intellectual property protection in each province, including the level of intellectual property protection law enforcement in the province, the average amount of compensation in provincial judicial judgments, the importance of the provincial party committee on intellectual property protection, and the actual impacts of intellectual property protection in the province. The micro-firm level research found that: (Acs and Patens 2012) Intellectual property protection improved firm TFP significantly, and this conclusion still holds after a series of robustness tests (Aghion and Howitt 1992). Intellectual property protection had a relatively significant role in promoting the TFP of technology-intensive firms, small and medium-sized firms, private firms, and non-coastal firms (Agostini et al. 2015). Intellectual property protection mainly promoted firm TFP through three influence mechanisms: stimulating R D behaviors, relaxing financing constraints, and moderating market competition. The middle-industry-level study shows that intellectual property protection significantly contributed to the growth of industry aggregate TFP by improving the overall technological level of surviving firms. Based on analysis at micro-firm and middle-industry levels, we provide new empirical evidence for deepening understanding of the productivity effects of intellectual property protection.
This paper empirically analyses mergers and innovation in the cloud computing market, one of the fastest-growing digital markets. We first examine mergers by big tech firms and venture capital funding for young start-ups in this market. We find that leading firms in the market tend to acquire young start-ups, whereas non-leading firms tend to purchase more established firms to gain market share. We then conduct an ex-post evaluation of how mergers in this market affect the innovation output —measured by patents. The results show a positive impact of mergers on the number of granted patents. In this market, and our measure of innovation, acquisitions do not necessarily harm innovation. The breakdown of this empirical analysis reveals stronger positive effects when the firm holds a leadership position in the market, operates as a multisided platform, or when the target is a publicly traded company. The value of the acquisition does not exert any additional impact.
This paper revisits the classic Cournot–Bertrand profit differential in a differentiated duopoly with firm-specific labor unions. Departing from the standard assumption of rent-maximizing unions, we introduce a new dimension by modelling unions that institutionalize workers’ fairness concerns. These concerns are formalized along two distinct, empirically grounded arguments: vertical fairness concerns (VFC), where unions care about the intra-firm distribution of surplus between labor (wage bill) and capital (profits); and horizontal fairness concerns (HFC), where unions engage in inter-firm wage comparisons driven by envy/pride. The intensity of each concern reshapes the union’s utility function from simple rent extraction to a more complex objective that includes relative payoff comparisons.
This paper examines how competition laws and regulations affect manufacturing firms’ productivity in 14 Latin American countries, addressing a notable research gap. Using firm-level panel data from the World Bank Enterprise Surveys and legal indicators from the Comparative Competition Law initiative, the study explores the impact of competition law on total factor productivity (TFP), focusing on mediators such as firm size, proximity to the technological frontier, and institutional context. Employing robust empirical methods, the analysis uncovers a complex relationship between competition law stringency, enforcement, and productivity. While certain legal provisions positively influence productivity—especially when accounting for firm size—stronger enforcement may offset these gains, likely due to higher compliance costs and legal uncertainty. The findings highlight the need for a balanced approach to competition regulation that fosters innovation and growth without overburdening firms. Tailoring policies to industry-specific conditions is critical for promoting fair competition and sustainable productivity improvements.
The automotive industry is undergoing a fundamental transformation driven by digitization, enabling original equipment manufacturers (OEMs) to exert increasing control over vehicle functions, data, and – consequently – after-sales markets. Despite high relevance for consumers, regulatory scrutiny remains limited. This paper examines whether these developments constitute digital gatekeeping in a functional sense and whether they justify increased regulatory attention. We show that OEMs’ digital strategies reinforce their dominance in secondary markets, particularly repair and maintenance. We assess the current European regulatory framework, focusing on the European Motor Vehicle Block Exemption Regulation (MVBER), and argue that it has not kept pace with the realities of software-defined vehicles. The planned MVBER review provides an opportunity to reassess legacy privileges and adapt competition rules to the digital age. We discuss potential reforms, including improved data access, stronger interoperability standards, and a broader definition of aftermarket components. We also examine supplementary measures such as a Right to Repair regime and self-regulation. Our analysis concludes that OEMs increasingly act as digital gatekeepers and that existing frameworks inadequately address the resulting risks. Regulatory recalibration is needed to safeguard innovation, consumer welfare, and long-term market openness.
Trade conflicts, geopolitical tensions, digital disruption, and the climate crisis pose major challenges for the European Union (EU) and its Member States. As called for in the Draghi Report, industrial policy measures can increase competitiveness, strengthen resilience, and facilitate the twin transformation. This article explores ways in which competition policy can be realigned to better accommodate industrial policy objectives. It presents options with which legislatures and competition authorities can respond to current challenges, reconcile conflicting objectives, and adapt the decision-making framework. It then considers elements of a competition-oriented industrial policy, understood as an evidence-based, targeted approach in which competition serves both as a guiding principle and as a control variable.
Foreign Direct Investment (FDI) plays a salient role in trading, representing the flow of capital from one country to another, typically in exchange for ownership stakes and operational control in enterprises, and contributing to the host economy’s development through technology transfer, employment generation, and market integration. There are myriads of theories that explain how FDI affects the industry, but the mechanism underlying the effect is not always clear, leaving a glaring knowledge gap. To fulfil the gap, we propose an assumption that FDI varies among countries and its efficacy is subject to the contextual factors. To examine the assumption, we conduct a systematic review, in which FDI theories and cognate themes are gathered from sixty-three articles (1960–2025) and analysed. Two meaningful findings are revealed. Firstly, the efficacy of FDI is linked to the motivations of investors, country-context and industry-context. Secondly, demerits of any particular FDI theory may facilitate the development of another one; that is, new theories are inspired and refined by the previous theories. Research findings have brought valuable insights to advance the FDI literatures. With better understanding of FDI theories, investors are inclined to make theory-informed decisions and formulate better investment strategies.
While the scholarly work on market power at the macroeconomic level has gained momentum during the last decades, there is still little empirical evidence on the heterogeneity of market power across industries as well as on the relation between market power and structural industry characteristics. This study thus explores the influence of market concentration and industry-specific factors on market power, as measured by markups, across nine industries within the European Union. The econometric estimation employs the Group Fixed Effect estimator and is based on a rich panel data set of 21 European countries for the years 1999-2021. To identify both proximate and ultimate drivers of market power, potential determinants include market concentration rates and structural conditions of the industries under consideration. Results reveal a significant correlation between market concentration and firms’ markup, which displays, however, substantial heterogeneity across sectors. The same is true for the relation between markups and investments in technology, research and development, and marketing expenses. Results are robust to the choice of the estimation procedure.
We examine merger guidelines relying on concentration measures, such as the HHI or its change (delta criterion). We identify under which contexts HHI-based guidelines approve (block) mergers that would have been blocked (approved) according to other criteria, potentially giving rise to false positives (negatives). Overall, we find that competition authorities can rely on easy-to-apply HHI criteria when the merger’s cost-reduction effects are minor, the merger accounts for a small market share, and cost convexities are small. Cost convexities hinder insiders’ ability to exploit their cost advantage to increase their output post-merger, leading to less market concentration than under linear costs, and making HHI-based approvals more likely.
While the impact of borders on price convergence for traded goods is well established, the role of regional disparities in product variety remains underexplored. We develop a model in which local products—those sold exclusively within a single country—emerge endogenously alongside traded products. In a symmetric setting, border costs affect pricing decisions but play a limited role in determining whether a product is local or traded; the latter depends on fixed production costs. The presence of local products leads to price divergence in traded goods by altering local competitive conditions. We show that failing to account for local products can lead to biased estimates of border effects in standard empirical designs. A Monte Carlo exercise illustrates the magnitude of this bias in a controlled setting, showing that omitting local competition leads to overestimation of border effects, while explicitly controlling for it restores near-unbiased estimation. Finally, we discuss empirical strategies to account for local product competition in applied border regressions.
Any episode of global financial turbulence can lead to the freezing and significant reversal of portfolio flows across different countries, emphasizing the need for adequate pre-emptive financial policy responses. This study investigates the sensitivities of global portfolio flows dynamics to a variety of global (push) and domestic (pull) determinants in a sample of 43 countries for the period from Q1 2005 to Q4 2020. Using panel regressions incorporating country fixed effects, we corroborate previous empirical evidence that push determinants remain the most important in driving portfolio inflows/outflows. The analysis shows that portfolio inflows/outflows decrease with the level of the expected change in the US central bank policy rate, world inflation surprise index, macro-risk index, and increase with better economic sentiment expectations, and investors’ confidence index. The biggest difference in exposures of global portfolio flows dynamics comes with the level of the short-term world interest rates, implying that they may discourage portfolio outflows but not inflows.
In this paper, we investigate the impact of corporate culture on firm performance by using firm-level data from Vietnamese listed companies. We use three proxies for corporate culture and several indicators for firm performance. The cross-section regression analysis yields evidence that there exists a significant and positive association between corporate culture promotion and firm performance in Vietnam. The specification that controls for possible endogeneity and simultaneity problems also confirms this impact of corporate culture. By interacting corporate culture with foreign factor, we expose an interesting result that corporate culture does drive and improve firm performance and employees work under foreign leadership even earn more than under domestic leadership, but the foreign-invested firms do not earn more than domestic firms in Vietnam.
Increased exports have the potential to spur economic growth and reduce poverty in sub-Saharan Africa. While existing literature extensively examines trade creation and the introduction of new export products, many developing countries still face the challenge of short-lived export spells. Increasing the lifespan of existing exports is a cost-effective and viable way to maintain export contribution to economic growth, especially for countries with institutional challenges. We investigate the determinants of export survival, with a specific focus on the role of agglomeration in destination markets. Using Malawi as a case study, we analyse export data from 117 trading partners over 20 years (2003-2022) employing a shared frailty survival model with a Weibull proportional hazard distribution. Our findings indicate that agglomeration significantly enhances the survival of Malawi’s exports, with spatial concentration of economic activities in importing countries reducing the hazard of export failure by approximately 4.5 percentage points. This effect remains robust across different trading partner samples and is particularly pronounced in Sub-Saharan African destinations. The findings reveal substantial heterogeneity in export survival across destinations and product types, highlighting the importance of strategic market targeting. These findings provide evidence for policy formulation in countries pursuing export-oriented growth amid institutional constraints.
