Competition, profitability, and discount rates

• 成果类型: Article
• 署名作者: Dou, Winston Wei; Ji, Yan; Wu, Wei
• 署名单位: University of Pennsylvania; Hong Kong University of Science & Technology; Texas A&M University System; Texas A&M University College Station; Mays Business School
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.12.013
• 发表日期: 2021
• 关键词: oligopoly; Profitability premium; Leadership persistence; Tariffshocks; price wars

摘要

We build an asset-pricing model with dynamic strategic competition to explain the strong joint fluctuations in aggregate discount rates, competition intensity, profitability, and asset prices. Product market competition endogenously intensifies as discount rates rise, because firms compete more aggressively for current cash flows by undercutting each other as the value of future cooperation decreases. In industries with a lower turnover rate of market leaders, firms' profit margins tend to be higher yet more exposed to discount-rate fluctuations, thereby generating the gross profitability premium. We exploit large tariff cuts to identify exogenous variation in market structure to test the core mechanism directly. (C) 2020 Elsevier B.V. All rights reserved.