Politics and entry deterrence: Evidence from China's industrial land market

Abstract

This paper examines one million land transactions and firm census data sets to determine the effect of market concentration on entry deterrence in China from 2006 to 2013. We find that a one standard deviation increase in the Herfindahl–Hirschman Index leads to a one standard deviation decrease in local government-designated industrial land sales to nonlocal firms and to a 2.9 standard deviation increase in land cost. Further evidence suggests that firms with high market power lobby their local governments to deter the entry of nonlocal firms.