Understanding Superstar firms, market dynamics and intangibles

Abstract

This thesis adds to the debate whether superstar firms, defined as top-income distribution firms (e.g., Amazon, Microsoft, Google, Facebook (Meta)) are good for economies. Rather than attributing market power to observed trends in reduced business dynamics and increased concentration, I propose a more optimistic explanation stemming from an economic model transformation due to a more intangible economy, technological advancements, and globalization. The first chapter describes U.K. business dynamics (e.g., entry and exit of firms) and its connection with intangible investments (e.g., brands, management practices, corporate culture). It builds on an original longitudinal database using business register data and the application, for the first time in the U.K. in decades, of the OECD’s DynEmp3 software routine to obtain comparable and matchable business dynamics indicators with intangibles’ data. Findings expose a negative relationship between employment growth rates and intangible investments, likely arising from frictions generated by a more intangible economy; skilled over unskilled labor is preferred. The second chapter addresses market power increasing concerns. Evidence of increasing measured markups, especially for Superstars, is debunked by the chapter, demonstrating it highly depends on the estimation approach used. After correcting some estimation inconsistencies, measured markups in the U.S. and Europe remained stable since the Great Recession. Findings support notions of rising industry concentration resulting from technological changes rather than lax regulation permitting market power. In the third chapter, we introduce unexplored innovation and intangible asset measurements for empirical research connecting markups and business dynamics. We find that in the U.K. and some Latin American countries, social media data can serve as proxies for these concepts at the firm level. We create measurements Twitnovation, representing a firm’s innovation drivers, and Aboutnovation, representing a firm’s investment in customer engagement. They explain a substantial portion of labor productivity variation and correlate strongly with marketing expenses. Social media data can offer a more cost-effective and immediate alternative to traditional firm innovation surveys. 1