Luohan Academy

Event Recap

Data and Market Power

Speakers : Laura Veldkamp
Online

Speakers: 

Laura Veldkamp (Columbia University)

Laura Veldkamp is a Professor of Finance at Columbia University's Graduate School of Business and is a former editor of the Journal of Economic Theory. Professor Veldkamp earned a B.A in applied mathematics and economics from Northwestern University, and a Ph.D. in economic analysis and policy from Stanford Graduate School of Business. Prior to joining Columbia, she taught at NYU for 15 years. She is a faculty research fellow for the National Bureau of Economic Research and the Centre for Economic and Policy Research, and a frequent consultant for the New York and Minneapolis Federal Reserve Banks. She is also the author of the textbook, Information Choice in Macroeconomics and Finance (Princeton University Press). Professor Veldkamp’s research focuses on how individuals, investors, and firms get their information, how that information affects the decisions they make, and how those decisions affect the macroeconomy and asset prices. Her recent work examines the data economy

Recap: 

On November 23, 2021, Professor Laura Veldkamp from Columbia University joined us in a Luohan Webinar to discuss the impact of data use on market power. 

It is often debated whether firms' use of data creates market power and thus leads to a decline in competition. This involves two critical disputes: (1) Is there a decline in competition? Empirical research that measures markups at the product, firm, or industry level comes to different conclusions. (2) Might the use of data be the main cause, since the information has economies of scale, and many large and data-intensive firms are on the rise?

Professor Veldkamp points out the essence of data or information is to reduce uncertainty and make better business predictions. More use of data does encourage firms to invest more in products that data predicts to be with higher consumer demand. As a result, data-richer firms will capture a larger market share. Therefore, the use of data does grow market power, but it also allows firms to operate more efficiently by producing more of the goods that consumers want most.

The two competing effects, i.e., larger market share and more efficient production, help to resolve the dispute in the empirical research on markup measurements. Whether there is an increase in markups depends on the level at which markups are aggregated. More use of data makes firms produce more of what consumers want more, therefore increases the supply and can reduce the markup of these products. However, even though these products' markups decrease, they are still high markup goods compared to other products. Therefore, when markups are aggregated at the firm level or industry level, more weights will be assigned to products with high markup but consumers prefer. Such composition effect will lead to a discrepancy between product-level markup and firm or industry-level markups. As a result, markups might not be a good measure to evaluate the market competition. 

 

If you would like to give a presentation in a future webinar, please contact our Economist Dr. Xijie Gao (xijie.gxj@luohanacademy.com). ​

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