Mariassunta Giannetti, Stockholm School of Economics
Roberto Tubaldi, BI Norwegian Business School
Abstract: We propose and test a theoretical mechanism for why supply chain shortages decrease industry competition. We show empirically that when supply chain shortages affect an industry, “superstar” firms experience smaller increases in costs and consequently are able to increase their market share and profitability. Supply chain shortages are also associated with an increase in markups and higher stock returns for superstar firms relative to other firms in the same industry. Consistent with our theoretical framework and the firm level evidence, when supply chain shortages occur, concentration increases and price hikes are larger in ex ante more concentrated industries. Specifically, ex ante differences in industrial structure and the large increase in supply chain backlogs during the COVID-19 pandemic recovery can explain about 25% of cross-sectional differences in inflation between industries in the US. Economic magnitudes are comparable in the international sample.
Discussant: Ina Simonovska, University of California-Davis
Radhakrishnan Gopalan, Washington University in St. Louis
Renping Li, Washington University in St. Louis
Alminas Zaldokas, National University of Singapore
Abstract: A firm's gross margin increases by 0.8 p.p. after forming a new direct board connection to a product market peer. Gross margin also rises by 0.4 p.p. after a connection is formed to a peer indirectly through a third intermediate firm. Further, using barcode-level data of 2.7 million products, we show that new board connections are related to higher consumer good prices, a greater tendency for market allocation, and slower new
product introductions. The effects are stronger when the newly connected peers share corporate customers or have similar business descriptions and hold when controlling
for other inter-firm relationships.
Abstract: We model the tradeoffs of an investor who builds positions and exerts governance in competing firms. The investor's governance in a given firm reflects and affects her stakes in its product market rivals: she anticipates how a certain exposure to competing firms would influence her governance and incorporates that information when choosing her portfolio. This two-way interaction creates an incentive for the investor to hold undiversified portfolios, tilted toward the firms where she exerts more governance, and can be such that poor governance persists even in more competitive sectors, and shocks to competition in product markets carry over to ownership markets, and vice versa.
