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We study how firms differ from their competitors using new time-varying measures of product similarity based on text-based analysis of firm 10-K product descriptions. This year-by-year set of product similarity measures allows us to generate a new set of industries in which firms can have their own distinct set of competitors. Our new sets of competitors explain specific discussion of high competition, rivals identified by managers as peer firms, and changes to industry competitors following exogenous industry shocks. We also find evidence that firm R&D and advertising are associated with subsequent differentiation from competitors, consistent with theories of endogenous product differentiation. [web URL: http://www.journals.uchicago.edu/doi/abs/10.1086/688176]

Using Panel Study of Income Dynamics (PSID) microdata over the 1980–2010 period, we provide new empirical evidence on the extent of and trends in the gender wage gap, which declined considerably during this time. By 2010, conventional human capital variables taken together explained little of the gender wage gap, while gender differences in occupation and industry continued to be important. Moreover, the gender pay gap declined much more slowly at the top of the wage distribution than at the middle or bottom and by 2010 was noticeably higher at the top. We then survey the literature to identify what has been learned about the explanations for the gap. We conclude that many of the traditional explanations continue to have salience. Although human-capital factors are now relatively unimportant in the aggregate, women's work force interruptions and shorter hours remain significant in high-skilled occupations, possibly due to compensating differentials. Gender differences in occupations and industries, as well as differences in gender roles and the gender division of labor remain important, and research based on experimental evidence strongly suggests that discrimination cannot be discounted. Psychological attributes or noncognitive skills comprise one of the newer explanations for gender differences in outcomes. Our effort to assess the quantitative evidence on the importance of these factors suggests that they account for a small to moderate portion of the gender pay gap, considerably smaller than, say, occupation and industry effects, though they appear to modestly contribute to these differences.

Research summary: This article reviews structural change in the automotive sector from 1997 to 2007. We find that, following internal framing contests, Original Equipment Manufacturers (OEMs) led efforts to change their sector's architecture, starting from both strong and weak competitive positions and working with suppliers to advocate a new vision based on modularity and outsourcing. As the risks and costs of this vision became apparent, OEMs were able to reverse course and reaffirm their hierarchical control on the sector, taking advantage of structural features that weren't salient ex ante. We consider why certain OEMs initiated this status-quo challenging change, and identify how sector structure mediated their (and suppliers') efforts to implement it. We document the complex change process, driven by agency, structure, and heterogeneity in firms' understanding of their sector's architecture. Managerial summary: We study the \"industry architecture\" (i.e., division of labor and profit) of the automotive sector. During the late 1990s, Original Equipment Manufacturers (OEMs) embraced a new vision, based on \"Modularity + Outsourcing,\" inspired by an analogy with Personal Computers (PCs). This seems puzzling since such a change was hard to implement and could have led to OEMs relinquishing strategic control of the sector. The misstep was caused by internal framing contests and the agendas and influence of suppliers, consultants, and academics. We also consider why OEMs were able to partially reverse these changes, and document the role of structural features that let them control their sector and retain value: managing the customer experience, acting as guarantors of quality, and preserving hierarchical supply chains in which they functioned as system integrators.

We analyze the effects of institutional cross-ownership of same-industry firms on product market performance and behavior. Our results show that cross-held firms experience significantly higher market share growth than do non-cross-held firms. We establish causality by relying on a difference-in-differences approach based on the quasi-natural experiment of financial institution mergers. We also find evidence suggesting that institutional cross-ownership facilitates explicit forms of product market collaboration (such as within-industry joint ventures, strategic alliances, or within-industry acquisitions) and improves innovation productivity and operating profitability. Overall, our evidence indicates that cross-ownership by institutional blockholders offers strategic benefits by fostering product market coordination.

Many developing economies adopt industrial policies favoring selected sectors. Is there an economic logic to this type of intervention? I analyze industrial policy when economic sectors form a production network via input-output linkages. Market imperfections generate distortionary effects that compound through backward demand linkages, causing upstream sectors to become the sink for imperfections and have the greatest size distortions. My key finding is that the distortion in sectoral size is a sufficient statistic for the social value of promoting that sector; thus, there is an incentive for a well-meaning government to subsidize upstream sectors. Furthermore, sectoral interventions’ aggregate effects can be simply summarized, to first order, by the cross-sector covariance between my sufficient statistic and subsidy spending. My sufficient statistic predicts sectoral policies in South Korea in the 1970s and modern-day China, suggesting that sectoral interventions might have generated positive aggregate effects in these economies.

In this inductive multiple-case study set in the nascent market for mobile payments, we investigate how global firms from different industries attempt to define the architecture for a new market. We find that powerful players from different industries have difficulty in reaching agreement on the new market's architecture due to their history of dominance in their respective industries. This disagreement in turn leads to a weak compromise on market architecture and creates a vicious cycle of resource allocation deferment. We show that the nascent market is thus less likely to emerge despite country-level attempts at resolving these issues. Our findings contribute to resource dependence theory and to theories of market emergence, and lead to a deeper understanding of when and how markets fail to emerge.

An optimal pace of business dynamics—encompassing the processes of entry, exit, expansion, and contraction—would balance the benefits of productivity and economic growth against the costs to firms and workers associated with reallocation of productive resources. It is difficult to prescribe what the optimal pace should be, but evidence accumulating from multiple datasets and methodologies suggests that the rate of business startups and the pace of employment dynamism in the US economy has fallen over recent decades and that this downward trend accelerated after 2000. A critical factor in accounting for the decline in business dynamics is a lower rate of business startups and the related decreasing role of dynamic young businesses in the economy. For example, the share of US employment accounted for by young firms has declined by almost 30 percent over the last 30 years. These trends suggest that incentives for entrepreneurs to start new firms in the United States have diminished over time. We do not identify all the factors underlying these trends in this paper but offer some clues based on the empirical patterns for specific sectors and geographic regions.

We document lead-lag effects on returns between coheadquartered firms in different sectors. Geographic lead-lags yield risk-adjusted returns of 5 %–6 % annually, half that observed for industry lead-lag effects. Whereas industry lead-lag effects are strongest among small, thinly traded stocks with low analyst coverage, geographic lead-lags are unrelated to these proxies for investor scrutiny. We propose an explanation linked to the structure of the investment analyst business, which is organized by sector, not by geographic region. Our findings suggest that in lead-lag relationships, analysts common to both leading and lagging firms are important, regardless of the number of analysts covering each individually.

Controlling for unobserved heterogeneity (or \"common errors\"), such as industry-specific shocks, is a fundamental challenge in empirical research. This paper discusses the limitations of two approaches widely used in corporate finance and asset pricing research: demeaning the dependent variable with respect to the group (e.g., \"industry-adjusting\") and adding the mean of the group's dependent variable as a control. We show that these methods produce inconsistent estimates and can distort inference. In contrast, the fixed effects estimator is consistent and should be used instead. We also explain how to estimate the fixed effects model when traditional methods are computationally infeasible.

We empirically assess industry tournament incentives for CEOs, as measured by the compensation gap between a CEO at one firm and the highest-paid CEO among similar (industry, size) firms. We find that firm performance, firm risk, and the riskiness of firm investment and financial policies are positively associated with the external industry pay gap. The industry tournament effects are stronger when industry, firm, and executive characteristics indicate high CEO mobility and a higher probability of the aspirant executive winning.