Dissipative Competition: Evidence from a Quasi‐Natural Experiment

30 Pages Posted: 3 Jun 2015

See all articles by Yuk Ying (Candie) Chang

Yuk Ying (Candie) Chang

Massey University

Martin R. Young

Massey University - School of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 2015

Abstract

We document that contrary to the conventional view, the costs of domestic firms in terms of selling, general and administrative expenses and cost of goods sold increase significantly following exogenous shocks that increase competition, namely material import tariff cuts affecting US manufacturing industries over the period 1974–2005. Incompatible with an agency explanation, the cost increase is more pronounced among firms with higher CEO/insider/board ownership. We further find that the cost increase is more evident among firms with smaller market share and among focused firms. Generally, our results are consistent with the notion of ‘dissipative competition’ discussed in the seminal papers by Tullock.

Suggested Citation

Chang, Yuk Ying and Young, Martin R., Dissipative Competition: Evidence from a Quasi‐Natural Experiment (June 2015). International Review of Finance, Vol. 15, Issue 2, pp. 169-198, 2015. Available at SSRN: https://ssrn.com/abstract=2613723 or http://dx.doi.org/10.1111/irfi.12050

Yuk Ying Chang (Contact Author)

Massey University ( email )

Palmerston North
New Zealand

Martin R. Young

Massey University - School of Economics and Finance ( email )

Private Bag 11222
Palmerston North, 4442
New Zealand

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