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Market Concentration – CRISCUOLO – June 2018 OECD discussion

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This presentation by Chiara Criscuolo, Head of the OECD Productivity and Business Dynamics Division, Directorate of Science, Technology and Innovation, OECD, was made during the discussion “Market Concentration” held at the 129th meeting of the OECD Competition Committee on 7 June 2018. More papers and presentations on the topic can be found out at oe.cd/2gw.

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Market Concentration – CRISCUOLO – June 2018 OECD discussion

  1. 1. WHAT’S DRIVING CHANGES IN CONCENTRATION ACROSS THE OECD? Chiara Criscuolo Productivity and Business Dynamics Division STI/OECD Competition Committee Hearing – Paris June 7th 2018
  2. 2. NO CAUSAL LINKAGES…. BUT RICH SET OF EVIDENCE
  3. 3. • Work in progress! • A piece of the puzzle • Our focus on productivity and business dynamics (rather than competition) WARNING!
  4. 4. • Trends across the OECD • Is the Digital transformation driving this? • Differences between Manufacturing and services? • And how much can be explained by Productivity and/or Innovation? • Do we see other trends that might suggest changes in market structure? – Business dynamism – Trends in M&A ROADMAP
  5. 5. TRENDS IN CONCENTRATION Note: Countries included: Australia, Austria, Belgium, Switzerland, Denmark, Finland, Japan, Hungary, Norway, Portugal and Sweden. The estimates reported in the graph are those of year dummies in a cross-country regression of the share of GO, L and VA in the top decile of the distribution with year=2001 being the reference year and with 2-digit sectoral dummies inlincluded. Source: MultiProd database, December 2017. Trends in within-country-sector changes in Share of GO, VA, L in the top decile of sales distribution
  6. 6. TRENDS IN MARK-UP Note: Unconditional averages of firm-level log mark-ups. The figure plots log-mark-ups and indexes the 2001 level to 0, hence the vertical axes represent log-differences from the starting year which, given the magnitudes, approximates well for growth rates. Source: Calligaris, Criscuolo and Marcolin, 2018
  7. 7. …ACROSS THE WHOLE DISTRIBUTION Cobb-Douglas Translog - Deciles of the mark-up distribution in the year-industry (A38), then averaged across sectors. - Dynamics not due to a particular country. Source: Calligaris, Criscuolo and Marcolin, 2018
  8. 8. …WITH SOME HETEROGENEITY ACROSS COUNTRIES Belgium Germany Denmark Spain Source: Calligaris, Criscuolo and Marcolin, 2018
  9. 9. WITH SOME HETEROGENEITY ACROSS COUNTRIES Finland France United Kingdom Sweden Source: Calligaris, Criscuolo and Marcolin, 2018
  10. 10. DO WE SEE DIFFERENT PATTERNS IN DIGITAL SECTORS?
  11. 11. WHICH SECTORS ARE DEFINED AS DIGITAL INTENSIVE? Sector denomination (36 sectors) Quartile of digital intensity Sector denomination (36 sectors) Quartile of digital intensity Agriculture, forestry, fishing Low Wholesale and retail trade, repair Medium-high Mining and quarrying Low Transportation and storage Low Food products, beverages and tobacco Low Accommodation and food service activities Low Textiles, wearing apparel, leather Medium-low Publishing, audiovisual and broadcasting Medium-high Wood and paper products, and printing Medium-high Telecommunications High Coke and refined petroleum products Medium-low IT and other information services High Chemicals and chemical products Medium-low Finance and insurance High Pharmaceutical products Medium-low Real estate Low Rubber and plastics products Medium-low Legal and accounting activities, etc. High Basic metals and fabricated metal products Medium-low Scientific research and development High Computer, electronic and optical products Medium-high Advertising and market research; other business services High Electrical equipment Medium-high Administrative and support service activities High Machinery and equipment n.e.c. Medium-high Public administration and defence Medium-high Transport equipment High Education Medium-low Furniture; other manufacturing; repairs of computers Medium-high Human health activities Medium-low Electricity, gas, steam and air cond. Low Residential care and social work activities Medium-low Water supply; sewerage, waste management Low Arts, entertainment and recreation Medium-high Construction Low Other service activities High Source: Calvino, Criscuolo, Marcolin and Squicciarini 2018
  12. 12. DIGITAL GAP IN MARK-UPS EARLY 2000S AND 2013-14 0 10 20 30 40 50 60 Digital Intensive vs Less Top Digital Intensive vs Less % 2001-03 2013-14 Source: Calligaris, Criscuolo and Marcolin, 2018
  13. 13. …WHEN LOOKING SEPARATELY AT MANUFACTURING VS SERVICES -10 0 10 20 30 40 50 Services Digital Services Non-Digital Manufacturing Digital % 2001-03 2013-14 Cobb Douglas, same controls as before. Percentage differences in firms’ mark-ups relative to firms in manufacturing non-digital sector Source: Calligaris, Criscuolo and Marcolin, 2018
  14. 14. CAN THIS “DIGITAL GAP” IN MARK-UP TRENDS BE EXPLAINED BY PRODUCTIVITY AND INNOVATION?
  15. 15. THE DIVERGENCE IN SALES a. Revenues in ICT services b. Revenues in non-ICT services -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 2001 2003 2005 2007 2009 2011 2013 Frontier firms Laggards -0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 2001 2003 2005 2007 2009 2011 2013 Frontier firms Laggards Source: Andrews, Criscuolo and Gal, 2017
  16. 16. …AND IN MULTI-FACTOR PRODUCTIVITY GROWTH Source: Andrews, Criscuolo and Gal, 2017
  17. 17. MARK-UPS BY PRODUCTIVITY VS PRODUCTIVITY BY MARK-UP Note: Panel composition in firms changes over time. Deciles are calculated in each period and sector. Source: Calligaris, Criscuolo and Marcolin, 2018 Firms From Lowest to highest mark-upsFirms From Lowest to highest productivity
  18. 18. THE MARK-UP GAP ALONG DIFFERENT FACETS OF THE DIGITAL TRANSFORMATION Unconditional changes in log mark-ups following a 1-standard-deviation increase in log(X). -0.10 -0.05 0.00 0.05 0.10 Source: Calligaris, Criscuolo and Marcolin, 2018
  19. 19. CONTROLLING FOR PRODUCTIVITY AND PATENT STOCKS OF FIRMS IN DIGITAL SECTORS ACCOUNTS FOR SOME… …BUT NOT ALL THE MARK-UP GAP! …controlling for age, TFP, physical capital intensity and patent stock. Percentage changes in mark-ups following a 1-standard-deviation increase in (log)X. All reported coefficient significant at the 1% confidence level (dotted bars report 5% significance). -0.10 -0.05 0.00 0.05 0.10 Source: Calligaris, Criscuolo and Marcolin, 2018
  20. 20. OTHER TRENDS IN DIGITAL INTENSIVE VS NON DIGITAL INTENSIVE SECTORS ACROSS THE OECD…
  21. 21. BUSINESS DYNAMISM IS DECLINING… Entry rates – Within sector trends across 12 countries% Country coverage: BEL, BRA, CRI, ESP, FIN, HUN, ITA, NLD, NOR, PRT, SWE, TUR. Sectoral coverage: manufacturing and non-financial market services, excluding Coke and refined petroleum and Real Estate. Source: OECD DynEmp3 database May 2018. Data for some countries are preliminary.
  22. 22. …MORE IN DIGITAL INTENSIVE SECTORS Entry rates – digital intensive vs. other sectors% Source: OECD DynEmp3 database. Data for some countries are preliminary.
  23. 23. STRONG M&A GROWTH IN DIGITAL SECTORS 25Particularly number of deals and minority stakes. High Digital Intensity Target Source: OECD calculations based on Zephyr
  24. 24. DIGITAL FIRMS ARE NOT JUST BUYING DIGITAL 26 Similar growth of digital & non-digital acquisitions Source: OECD calculations based on Zephyr
  25. 25. NON-DIGITAL FIRMS INCREASINGLY BUYING DIGITAL 27 Increasing role of CVCs, accelerators and VC? Source: OECD calculations based on Zephyr
  26. 26. ADDITIONAL SLIDES
  27. 27. TRENDS IN CONCENTRATION (2) Note: Countries included: Australia, Austria, Belgium, Switzerland, Denmark, Finland Japan, Hungary, Norway Portugal and Sweden. The estimates reported in the graph are those of year dummies in a cross-country regression of the share of GO, L and VA in the top decile of the distribution with year=2001 being the reference year. Source: MultiProd database, December 2017. Share of GO, VA, L in the top decile of LP distribution
  28. 28. CONCENTRATION C4 FROM ORBIS+STAN

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