Dissipative Competition: Evidence from a Quasi-Natural Experiment
Chang, Y. & Young, M. (2015). Dissipative Competition: Evidence from a Quasi‐Natural Experiment. International Review of Finance, 15(2), 169-198.
44 Pages Posted: 20 Sep 2017
Date Written: March 2, 2015
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 (1967, 1980).
Keywords: competition, tariffs, SG&A, COGS, agency explanation, market share, focused firms
JEL Classification: G39, F13
Suggested Citation: Suggested Citation