Market Structure, Oligopsony Power, and Productivity

Abstract

I study how ownership consolidation affects productivity and market power in both factor and product markets. I develop a model to separately identify markups, markdowns, and productivity using production and cost data. I use the model to examine the effects of consolidation in the Chinese cigarette manufacturing industry. I find that consolidation led to an increase in intermediate input price markdowns of 30%, but to only a slight drop in cigarette price markups. Although industry consolidation was defended as a means to spur productivity growth, I find that it actually lowered aggregate productivity.