How does industrial automation affect firm market power? This seminar examines how robot exposure changes markups, costs and productivity in China's manufacturing sector.
Does industrial automation strengthen firms' market power? This seminar examines how exposure to industrial robots affects firm markups, operating costs and productivity in China's manufacturing sector, using measures of robot exposure at both the industry and city levels.
Greater robot exposure reduces average firm markups, with the largest declines among firms with initially high markups. In China, these firms tend to be smaller, younger and privately owned. Their operating costs rise following robot adoption, consistent with adjustment costs that compress markups. Other firms experience declines in both costs and revenue; larger cost reductions allow some to maintain or increase their markups.
These findings qualify the view that automation strengthens the market power of large 'superstar' firms. In the Chinese manufacturing setting examined here, the results do not show a general increase in market power among the largest firms. Instead, differences in firms' ability to absorb the costs of adopting robots help explain their responses. The seminar discusses what these findings imply for understanding automation and competition in China.