Implications of Market Structure for Inequality and Development

Market structure and imperfect competition have long been subjects of the industrial organization literature. This area of economics, however, has traditionally focused on developed countries and predominantly on output rather than input markets. Recent studies suggest that market structure plays an important role in developing countries and that its interaction with salient features of their economies, importantly other market imperfections, may yield non-standard outcomes. In turn, many of these interactions can be understood as amplified versions of phenomena that are also at play in advanced economies and therefore likely have broader relevance than purely in a development context.

During my PhD studies, I intent to build on this growing literature to further explore the implications of imperfect competition for inequality and development through several empirical research projects, including the following:
- Two-sided market power and input prices: Changes in competition of intermediate-sector firms in a supply chain may have ambiguous effects on the welfare of upstream input suppliers. Suppliers benefit from greater competition between intermediaries for their inputs, but suffer from their competition on the output markets as this may reduce firm-specific surplus. I intend to empirically estimate the extent to which one effect dominates the other and uncover the underlying determinants in the context of labour markets in India and the United Kingdom. The expected link between competition and wage inequality is one example of a topic that may well be broadly relevant to various countries along the development spectrum.
- Market power and spillovers in the motor-vehicle sector in Uganda: The motor-vehicle sector in Uganda is dominated by only a few brands, particularly Toyota. Informal interviews that I conducted in December 2016 suggest that the availability of used parts is a key factor for vehicle choice in the country. Following this intuition, I hypothesize that this brand prominence derives from intertemporal value spillovers from used cars/parts in the secondary market that reduce search costs in case of repair and lead to aggregate economies of scale. I intend to test this hypothesis using administrative data on vehicle registrations and imports from the Uganda Revenue Authority (URA).

The empirical estimation will, to the extent possible, draw on existing data. These include datasets prepared by Indian government agencies (some of which need to be purchased), secure data from the Office for National Statistics in the UK and administrative datasets from the URA in Uganda that require extraction and cleaning starting from their raw form. I have already reviewed some of the relevant Indian datasets that are available at the University of Warwick and have submitted documentation to the URA requesting access to the necessary Ugandan data. Overseas fieldwork will likely be important for the retrieval and/or proper interpretation of the Indian and Ugandan data or their supplementing with information from original surveys or third sources. In addition, I understand that physical presence oftentimes expedites the retrieval process substantially.
This proposed research will address the relationship between competition and inequality/development via structural estimation techniques. These involve (i) formulating a theoretical model specifically for the study at hand and (ii) estimating the underlying parameters using a combination of econometric, calibration and simulation techniques. The explicit theoretical model will allow me to predict the impact of policy changes by simulating the optimal behavioural responses of firms and individuals. Given the frequency of policy interventions targeting competition or specific labour market outcomes in developing and developed countries, this makes structural estimations particularly fitting for my work.