Industrial organisation

Bo Cowgill, Andrea Prat, Tommaso Valletti, 16 May 2022

Industry concentration leads to increased market power, but can it also lead to increased political power? This question, first asked by Brandeis in 1914, is receiving renewed attention. This column investigates the effect of a merger on the amount of political activity of the merging firms. While theoretical predictions are ambiguous, US data from the past 20 years indicate that the average merger involving listed companies is associated with a 30% increase in lobbying spending. 

Willem Thorbecke, 26 April 2022

The Ukraine war and the Covid-19 pandemic provide windows to study the impact of exogenous shocks on the US semiconductor industry. This column uses high-frequency data to reveal that supply chain disruption did not severely damage the industry in the US. However, the US is less competitive than the East Asian countries in the semiconductor industry because of educational attainment, fiscal discipline, and employment incentives. Policymakers should be aware of these factors before subsidising the industry.

Fiona Burlig, Akshaya Jha, Louis Preonas, 08 April 2022

Electricity blackouts continue to impose major costs on firms and households around the developing world.  There are many causes for these blackouts, including limited electricity generating capacity and failing distribution infrastructure. This column provides an additional explanation for India’s blackouts: utilities choose to purchase less electricity from the wholesale sector when procurement costs are high, leading to less electricity reaching end-users. India could reduce blackouts by making its existing fleet of power plants available to generate more often, which would require addressing ongoing inefficiencies in Indian electricity supply.

Decio Coviello, Andrea Guglielmo, Clarissa Lotti, Giancarlo Spagnolo, 24 March 2022

Rules constraining bureaucratic discretion may limit the misuse of public funds but may also hinder government performance. Using Italian public works data, this column examines the prevalence and impact of procuring administrations manipulating the value of contracts. The authors find evidence suggesting that appointed administrations violate procedural rules to manipulate the value of contracts to retain discretion, and do it often enough to establish repeated interactions with less risky and better-performing suppliers so that, on average, procurement outcomes improve. They find no manipulation (and poorer procurement outcomes) for elected administrations, possibly due to stronger electoral discipline. 

Bernard Hoekman, Bedri Taş, 23 March 2022

Does international best practice public procurement regulation designed to maximise ‘value for money’ make it more difficult for smaller firms to win contracts? Using European procurement contract data, this column finds that higher quality regulation is associated with greater SME participation and higher probability that SMEs win contracts. Dividing contracts into smaller lots bolsters participation by SMEs, but only increases the probability of SMEs winning contracts for small-value lots (less than €25,000). The results suggest governments can enhance participation by SMEs in public procurement by improving the overall quality of procurement processes

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