Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269204 
Authors: 
Year of Publication: 
2023
Series/Report no.: 
LawFin Working Paper No. 47
Publisher: 
Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin), Frankfurt a. M.
Abstract: 
Industry concentration and markups in the US have been rising over the last 3- 4 decades. However, the causes remain largely unknown. This paper uses machine learning on regulatory documents to construct a novel dataset on compliance costs to examine the effect of regulations on market power. The dataset is comprehensive and consists of all significant regulations at the 6-digit NAICS level from 1970-2018. We find that regulatory costs have increased by $1 trillion during this period. We document that an increase in regulatory costs results in lower (higher) sales, employment, markups, and profitability for small (large) firms. Regulation driven increase in concentration is associated with lower elasticity of entry with respect to Tobin's Q, lower productivity and investment after the late 1990s. We estimate that increased regulations can explain 31-37% of the rise in market power. Finally, we uncover the political economy of rulemaking. While large firms are opposed to regulations in general, they push for the passage of regulations that have an adverse impact on small firms.
Subjects: 
Market Power
Competition
Concentration
Machine Learning
Regulations
JEL: 
L51
L11
C45
D4
Document Type: 
Working Paper

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