Brand Reallocation, Concentration, and Growth
Time: 4:00 pm-5:30 pm, May. 29th, 2023
Speaker: Liangjie Wu
(The Einaudi Institute for Economics and Finance)
Meeting ID: 969 9017 4936
This paper studies the macroeconomic implications of firm-branding activities. We show empirically that firms build market share by creating new brands, developing their existing brands, and buying established brands from other firms. Sales and prices of the underlying branded products tend to rise when a large firm acquires a brand from a small firm. To interpret these findings and quantify the implications, we introduce an endogenous growth model where brand creation, maturity, and reallocation determine both market concentration and economic growth. On net, brand reallocation improves efficiency in the quantified model, even as it increases concentration by over 30%; blocking brand reallocation would reduce welfare by 2%. A tax on brand reallocation alleviates pricing distortions from concentration but nevertheless reduces efficiency by slowing growth. In contrast, a subsidy to brand or firm entry can alleviate pricing distortions and raise growth. In markets with fast maturing brands, subsidies to entry become more effective and blocking brand reallocation becomes more costly. Broadly, our framework finds that effective industrial policies require attention to brand maturity, heterogeneity, and fit with the production and distribution capabilities of the parent firm.
Professor Liangjie Wu is an Assistant Professor at Einaudi Institute for Economics and Finance. His research interests are search theory and the study of market power. His working papers include "Partially Directed Search in the Labor Market", "Matching, Wages, and Teams: A Quantitative Framework ", with Jeremy Pearce. Professor Wu received his Ph.D. in Economics from the University of Chicago in June 2020.