Artificial Intelligence Policy, Product Competition and Industry Concentration: Evidence from “Superstar” Firms in China
56 Pages Posted: 3 Dec 2024
Abstract
This paper examines the causal impact of the emerging artificial intelligence (AI) technology on the competitive landscape of firms within a given industry in China. To establish causality, we exploit the exogenous variation in AI investments brought about by the AI policy issued by China's central government. The results of the difference-in-differences estimation indicate that the application of AI technology significantly increases competition between firms in product markets and increases industry concentration among the top 5 firms in the long run. Robustness tests conducted with different specifications support the baseline results. Price competition, big data accumulation and the size effects of the "Top Five" firms provide the potential mechanisms. Our analysis contributes to the understanding of the consequences of AI technology and presents relevant policy implications for the phenomenon of "superstar" firms in developing countries.
Keywords: Artificial intelligence policy, Product competition, Industry concentration, "Superstar" firms, Natural experiment, China
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