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Automation and the Rise of Superstar Firms

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Zheng Liu discusses evidence that the rise in automation technology contributed to the rise of superstar firms in the past two decades. Liu further explains the empirical link between automation and industry concentration in a general equilibrium framework with heterogeneous firms and variable markups.

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Image courtesy of interviewee. July 12, 2023

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The paper examines two significant trends in the U.S. economy over the past two decades: the rise of automation, particularly through robotics, and the concurrent increase in industry concentration dominated by a few large firms. These trends are observed to be interconnected, with automation technologies being adopted predominantly by larger firms, which in turn fosters further concentration in various industries.

The study poses questions about whether these trends are mere coincidences or if they have a causal connection, exploring how automation contributes to increased sales concentration among top firms while having an insignificant effect on employment concentration. It outlines a theoretical framework where firms make choices between adopting labor-only technology or automation technology, recognizing that larger firms are better positioned to invest in costly automation due to their greater productivity and capacity to absorb fixed costs.

Data indicate that the declining robot prices have primarily benefited larger firms, enhancing their productivity and leading to greater market power—thus increasing industry concentration. The authors utilize an instrumental variable approach informed by earlier robot adoption in European countries to establish causality in the observed relationships. The findings suggest that about 80% of the increase in sales concentration in U.S. manufacturing can be attributed to the decline in robot prices.

In considering policy implications, the paper discusses whether taxing robots would be beneficial. It suggests that while a tax could address market inefficiencies driven by large firms' market power, it may also hinder productivity gains. The authors propose that a small subsidy for businesses utilizing robots could enhance social welfare by balancing these conflicting interests. Overall, the research highlights the dynamic interactions between technological advancement and market structure, advocating for nuanced policy responses to maximize economic welfare.

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Here are five key points from the video:

1. **Trends in the US Economy**: The paper discusses two significant trends in the US economy over the past 20 years: the rise of automation, particularly through increased robot adoption and declining robot prices, and the rise of industry concentration, with a few large firms dominating major sectors of the economy.

2. **Connection Between Automation and Industry Concentration**: The study investigates whether the trends of automation and industry concentration are merely coincidental or inherently linked. It finds that the adoption of automation technologies, especially by large firms, correlates with increased industry concentration, as these firms have the resources to invest in costly automation technologies.

3. **Causal Effects**: The authors employ instrumental variable techniques to establish that automation has a positive causal effect on sales concentration, measured by the share of top firms in industry sales, though the effect on employment concentration is minimal. This suggests that automation benefits larger firms more than smaller ones, contributing to their growing market dominance.

4. **Modeling Firm Behavior**: The theoretical framework developed in the paper presents firms of varying sizes and productivity levels making technology choices. Larger firms tend to adopt automation technologies more readily due to their financial capabilities, leading to economies of scale that further enhance their productivity and market power.

5. **Policy Implications**: The study concludes by discussing the implications for policy, particularly regarding the taxation of automation (robots). While taxing robot usage could address market inefficiencies arising from large firms' market power, it could also hinder overall productivity growth. The authors recommend a modest subsidy for robot-using firms to balance these trade-offs and maximize social welfare.

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Here are some key quotes extracted from the video:

1. **Motivation for the Study**:
- "The paper is motivated by, uh, the observation that there have... been two remarkable trends in the US economy over the past 20 years."

2. **Trends Identified**:
- "One trend is the rise of, uh, automation... the number of industrial robots per thousand manufacturing workers... has quadrupled since 2000."
- "The real price of robots... has declined by over 40% during the same period."
- "The other trend that is interesting and remarkable is the rise of industry concentration... increasingly been dominated by a small number of superstar firms."

3. **Connection Between Trends**:
- "What's interesting to us is that these two trends appear to be connected."

4. **Causal Relationship Inquiry**:
- "Are these trends just coincidence or are they inherently connected?"

5. **Definition of Superstar Firms**:
- "A superstar firm is a company with a dominant presence in industry... typically have higher margins... and they have lower labor income share."

6. **Effects of Automation**:
- "Automation could also displace workers or reduce wages and labor income share as well."

7. **Analysis and Identification of Trends**:
- "There are two potential sources of the increasing concentration. One comes from the demand side, the other from the supply side."
- "Large firms are typically also more productive... since they are more capable of investing in new technologies such as automation."

8. **Implications for Policy**:
- "If the increasing concentrations primarily driven by factors such as market power, then it's not a good thing. It's inefficient, and it will call for policies such as, uh, antitrust regulations."
- "But if this consequence of, uh, more increased technology adoptions, then the policy prescription should obviously be different."

9. **Empirical Investigation**:
- "We further investigate the potential causal effects of automation on industry concentration."

10. **Quantitative Findings**:
- "We find that automation does have a causal positive effect on sales concentration measured by the top 1% firm's share."
- "A 40% decline in the robot price... could explain about 80% of the increase in sales concentration in the US manufacturing sector."

11. **Policy Recommendations**:
- "Taxing robots can actually help undo part of the inefficiency related to market power."
- "We find that a modest subsidy of about 5% for robot using firms would maximize social welfare."

These quotes highlight the main themes and findings of the presented study, including the trends of automation and industry concentration, their connection, and implications for policy-making.

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Here are some articles and studies that are similar in topic to the video you , which discusses the trends of automation, industry concentration, and their economic implications:

1. **"Rise of the Robots: Technology and the Threat of a Jobless Future" by Martin Ford** - This book explores the impact of automation and artificial intelligence on the economy and job market, including issues of job displacement and the concentration of wealth.

2. **"The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies" by Erik Brynjolfsson and Andrew McAfee** - This book examines how digital technologies are reshaping industries, creating wealth gaps, and influencing productivity and employment patterns.

3. **"Automation and Job Loss: How Expecting a Decrease in the Employment Rate Can Deal with the Problem" by Susan Houseman** - This article discusses empirical evidence regarding automation and its impact on employment, providing a perspective on labor market shifts as automation technologies are adopted.

4. **"Superstar Firms and the Global Economy" by Klaus Schwab and others** - This report highlights how a small number of firms are commanding a disproportionate share of the economy, discussing the implications for competition and market dynamics.

5. **"The Impact of Automation on Employment: A Review of the Evidence" by David Autor, Frank Levy, and Richard Murnane** - This paper reviews the relationship between technological change, automation, and labor market outcomes, assessing the effects on wages and employment structures.

6. **"Market Power, Technological Change, and the Decline of Labor Share" by John Grullon, Yelena Larkin, and Irem Tuna** - This academic paper investigates the relationship between market power, technology adoption, and labor income share, which parallels themes in your video.

7. **"Technology, Market Structure, and the Distribution of Income" by David Dorn, Lawrence F. Katz, and Cristina Patrinos** - This study explores the effects of technology and market structure on income distribution, discussing the implications for labor and capital.

8. **"The Automation Adventure: Understanding the Impacts of Artificial Intelligence on Business" by various authors** - This compilation of studies explores how AI and automation technologies are revolutionizing industries, impacting firm size, productivity, and market dynamics.

These articles delve into the themes of automation and its economic consequences, industry concentration, labor market implications, and policy responses—similar to the content you've shared.

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The paper is motivated by, the observation that the there have,

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there have been two remarkable trends in the US economy over the

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past 20 years. One trend is the rise of,

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automation. Uh, and, we can see that,

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there's a steady increase in robot adoptions and the steady

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decline in robot prices. And,

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this happens starting in early two thousands. Um, for example,

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the number of industrial robots per thousand manufacturing workers is aggregate

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data has quadrupled since 32,000. And,

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the real price of robots, which is inflation adjusted price,

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the cost of robots has declined by over 40% during the same period.

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The other trend that is interesting and remarkable is the rise of

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industry concentration.

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And each major sector of the economy has increasingly been

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dominated by a small number of superstar firms.

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And what's interesting to us is that these two trends appear to be connected.

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There is,

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there are some recent census studies that show that at the firm level in

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the United States adoption of automation technologies, in particular,

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AI and robotics are heavily skewed toward a

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few large firms. They're not widespread,

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but they're heavily concentrated in a few large firms.

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So our study is basically motivated by these observations. We, we,

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ask a question, you know,

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are these trends just coincidence or are they inherently

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connected? If they're connected, what might explain the connection?

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Well,

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a superstar farm is a company with a dominant presence in industry.

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You can think, of Apple or Walmart in their own industry.

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This farms usually account for disproportionally large share of revenues,

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in, in their own industries.

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And this superstar firms typically have higher margins,

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profit margins or markups, and they have lower labor income share.

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So, there are recent studies by order at all.

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They're saying, well, superstar firms are rising. And,

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then the conseque reallocation of resources towards these

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large farms with low labor share, how be explained,

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the decline, aggregate labor, income share,

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and the rise in aggregate markup. And,

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there are also other studies,

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I I'm gonna talk about the literature while we at this,

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on the superstar firm and automation.

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Some other empirical studies also find is,

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automation has some similar effect.

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Adopting automation technologies have improved productivity like grades might

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cause in 2018, showed that as IOUs travel also showed that,

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but automation could also displace workers or reduce wages and labor

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income share as well. So this, this studies,

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you know, suggest,

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both industry concentration increase and the

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automation rise have important consequences for productivity

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and the allocation income. And,

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under understanding the cost of the rise in industry concentration is very

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important for policy designs. Uh, and,

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there are two potential source of the increasing concentration.

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One comes from the demand side, the other comes from the supply side.

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On the demand side, large firms have high market power.

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They want to maintain their market power by producing less,

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by raising price, or else being equal on the supply side. However,

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large firms are typically also more productive.

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So this high productivity help them to contain costs.

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And since they are more capable of investing in new,

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new technologies such as automation,

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and those technologies are costly.

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So by investing these new technologies,

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it helps 'em to improve productivity further.

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So if the increasing concentrations primarily driven by factors such as

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market power, then it's not a good thing. It's inefficient,

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and it will call for policies such as, antitrust regulations.

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But if this consequence of,

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more Inc or increased technology adoptions,

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then the policy prescription should obviously be different.

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You should not tax them. Instead,

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you should perhaps encourage 'em to do more of the technology adoption,

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expand their production further.

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So there's a recent strand of literature that our studies closely related to

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that literature argue that

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the rise of industry concentration is linked to technology adoptions,

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such as automation through an economy of scale effect,

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or sometimes known as network effect.

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And the order at the co-authors that we cite in the paper and the Uber

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registrable and the all, they, they all

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explain this idea. So the basic idea is large firm

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Has sufficient resources to invest in new technologies that might be too costly

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for small firms. And, by yeah, gaining a,

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a new, advantage in new technology, a large firm can grow even larger.

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So this, this is, this idea, we build on this idea. And,

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just to dig deeper in the specific area,

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of automation. Main data source that we rely on is,

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comp compute stat,

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which is a dataset that contain all the publicly listed firms.

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Um, and,

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we construct a measure of industry concentration based on the share

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of sales of the top 1% of firms. Uh,

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we also do the same for employment,

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the share of employment of the top 1% of firms. And,

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we measure,

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automation by the number of industrial robots per thousand workers

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in each manufacturing industry. And the, the,

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the data is limited to manufacturing because,

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we take the robot data from the International Federation of Robotics or if r

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and, that data source give us mostly manufacturing,

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industries. And, our,

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if you look at the raw correlations, you construct robot den density,

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which is a number of robots per thousand workers.

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And you correlated with those, measures of industry concentration.

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You can see a significantly positive correlation between robot density

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at the industry level and the top 1% share in sales.

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But the correlation with employment concentration is, less significant. Uh,

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it is, statistically it's not different from zero,

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of course, you know, the correlations are not,

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necessarily causal relations. Um, so,

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mainly because, you know,

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both robot density and the industry concentration could be driven.

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Some other factors,

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could be changes in productivity or changes in demand. So,

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we further investigate the potential causal effects of automation

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on industry concentration. To do that, we need,

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some instrumental variable,

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an instrumental variable in simple language is something that is,

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correlated with, robot density,

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but not directly correlated with the industry concentration.

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And, the idea of constructing this,

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I IV or instrumental variable is based on,

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a study by ACLU and RA in 2020.

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They noted that, there's a,

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a wide variation across industries of robot adoptions.

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Not every industry adopt robots quickly. And,

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there's a common set of industries like automobile in both US

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and Europe experienced fast robot adoptions in the past two

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decades. So importantly,

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the European economies adopted robots well ahead of the us.

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Uh, like Germany, France, they have, earlier,

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their earlier adopters of robots. So that gives us information,

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from the, the European robot, adoption,

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or you measure it by robot density in the industry should

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lead that of the US adoption.

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So we use the lagged European robot density

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in the industry as an instrument for the

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same, so robot density in the same industry in the us. Uh,

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this is, it turns out to be, a valid, and good instrument,

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by statistical measures. So if you do the IV this, this way,

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the in instrumental variable estimation,

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then we find that automation does have a causal positive causal effect

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on sales concentration measured by the top 1% firm's share.

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But, the causal effect on employment concentration is,

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insignificant. We try to understand what might be,

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might explain the link between automation and industry concentration,

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documented, in, in our, dataset. And for that purpose,

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we construct a theoretical framework,

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that features firms with different sizes and different levels of productivity,

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and they make decisions between, which technology to use,

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how much to produce. Uh, the technologies available are two types.

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One is, labor only technology that doesn't require any automation equipment.

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The other is,

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automation technology that requires both labor and automation

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equipment.

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And I just call it robots as inputs and robots.

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And the workers are, substitutable inputs,

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but they're not perfect substitutes just to be realistic.

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And we calibrate the elasticity of substitution based on other studies.

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Well, in the model adopting automation technology requires first

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purchasing a robot at the market price. But it also,

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in order to operate in the automation technology,

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it requires the firm to pay not just workers,

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but also the cost of fixed cost of maintaining the robots

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or keep it running, like using energy. Those we don't model.

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So we just assume it's a fixed cost for, using the op,

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automation technology. And, with this,

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fixed cost of automation of using automation technology,

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there comes a economy of scaling, fact that I just mentioned.

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And, large firms are able to pay the fixed cost.

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They're more capable of paying that,

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and therefore they're more likely to use the automation technology.

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But using that technology help them to improve productivity cuz they can produce

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more output for any given number of workers. And,

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that leads to an economy of scale effect.

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That's crucial for explaining the link with automation and industry

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concentration To just think a little deeper in the model mechanism,

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you think about on average,

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large firms are more productive and they're more profitable.

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So they're better capable of investing in this automation technology cuz they

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can afford to fix cost. And now when you think about a,

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a robot price decline, as we observe in the data,

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robot price decline steadily, a decline.

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Robot price benefits primarily those large firms that do use robots.

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A small firm doesn't use robot. If it doesn't use robot, it does not matter. Uh,

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a robot price decline might induce some firms at the margin to increase robot

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adoption, become a robot user. But those existing robot users,

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which are large farms, will benefit most.

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And the increased user robots would improve those farms labor productivity

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and allow the large farms to become even larger. And this,

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economy scale effect leads to an increase in concentration and explain

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the connection between robot use and,

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the increase in the share of top 1% firms in sales.

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But now come to the empirical fact that the connection between automation

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and employment concentration is not significant.

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We try to find,

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use the same approach to see the correlation or the causal relation between

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automation and employment concentration. We don't find any in the data.

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So the model has, has also correctly predicts that pattern because,

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for large firms that use robots,

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robots can substitute partially substitute for labor.

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And the expansion of those large farms therefore relies more

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on robot use than worker use.

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So their sales share rises quickly that that's because they're using more

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robots. When the robot price declines,

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they don't need to rely on workers as much.

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So the employment concentration does rise,

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but it rise by much less than sales concentration. So,

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this is connected to the literature I mentioned earlier.

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The concept of the scale economy is not new.

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Is this associated with new technology adoption? You know,

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when the large firms are more capable of investing in new technologies in

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general, and that allowed them to grow fast,

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our contribution is mainly quantitative.

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We,

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our paper shows that in a carefully calibrated the model with realistic

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features like,

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heterogeneous firms and who are making technology choices

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between automation, technology, labor only technology.

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And this model, if you calibrate it carefully,

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you can actually match some real world observation such as the one

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documented by the census study, recent sensor study by ular,

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all which is automation is highly concentrated in a few

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large firms, it's not widespread.

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And the ability of the model to match this firm level distribution of

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automation is actually,

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evidence we interpret as,

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suggesting that model is a plausible framework for addressing the

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link between, between automation and industry concentration.

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So now I come to the quantitative conclusion. Um,

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we find that in the calibrated model,

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a 40% decline in the robot price comparable to the magnitude to observe

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in the past 20 years,

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would expl could explain about 80% of the increase

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in sales concentration in the US manufacturing sector,

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and also explain about 60% of the diverging trends between

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sales concentration and employment concentration. So,

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we also study the policy question,

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based on the Calgary model. We ask a question, should,

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should we tax robots? Well,

17:01.340 --> 17:05.640
our framework is able to provide an answer, because the,

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the model implies that large firms are more likely robot

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users, they have a higher markup, but markup is not a good thing.

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That's a potential source of inefficiency.

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So taxing robots can actually help undo

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part of the inefficiency related to market power.

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But at the same time,

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large firms are also more productive.

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Taxing robot using large firms would reallocate

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resources away from the more productive firms to lose less productive farms.

17:45.590 --> 17:47.650
And that reduce aggregate productivity

17:49.060 --> 17:53.910
Gain, you know, mitigating the markup distortion, you lose,

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aggregate productivity.

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And this tradeoff between markup and productivity implies

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an interior optimum of tax or subsidy rates,

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automation. And, with our calibration,

18:10.180 --> 18:14.880
we find that a modest subsidy of about 5% or under 5%

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for robot using firms would maximize social welfare.

18:20.300 --> 18:22.840
Uh, of course, we, we, we are aware that the,

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this particular result is specific to our calibration,

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although we argue that our calibration is empirically plausible.

00:06 - The paper is motivated by, the observation that the there have, there have been two remarkable trends in the US economy over the past 20 years. One trend is the rise of, automation. and, we can see that, there's a steady increase in robot adoptions and the steady decline in robot prices. And,

00:33 - this happens starting in early two thousands. for example, the number of industrial robots per thousand manufacturing workers is aggregate data has quadrupled since 32,000. And, the real price of robots, which is inflation adjusted price, the cost of robots has declined by over 40% during the same period. The other trend that is interesting and remarkable is the rise of industry concentration. And each major sector of the economy has increasingly been dominated by a small number of superstar firms. And what's interesting to us is that these two trends appear to be connected.

01:18 - There is, there are some recent census studies that show that at the firm level in the United States adoption of automation technologies, in particular, AI and robotics are heavily skewed toward a few large firms. They're not widespread, but they're heavily concentrated in a few large firms. So our study is basically motivated by these observations. We, we, ask a question, you know, are these trends just coincidence or are they inherently connected? If they're connected, what might explain the connection?

02:02 - Well, a superstar farm is a company with a dominant presence in industry. You can think, of Apple or Walmart in their own industry. This farms usually account for disproportionally large share of revenues, in, in their own industries. And this superstar firms typically have higher margins, profit margins or markups, and they have lower labor income share. So, there are recent studies by order at all. They're saying, well, superstar firms are rising. And, then the conseque reallocation of resources towards these

02:44 - large farms with low labor share, how be explained, the decline, aggregate labor, income share, and the rise in aggregate markup. And, there are also other studies, I I'm gonna talk about the literature while we at this, on the superstar firm and automation. Some other empirical studies also find is, automation has some similar effect. Adopting automation technologies have improved productivity like grades might cause in 2018, showed that as IOUs travel also showed that,

03:21 - but automation could also displace workers or reduce wages and labor income share as well. So this, this studies, you know, suggest, both industry concentration increase and the automation rise have important consequences for productivity and the allocation income. And, under understanding the cost of the rise in industry concentration is very important for policy designs. and, there are two potential source of the increasing concentration. One comes from the demand side, the other comes from the supply side.

04:05 - On the demand side, large firms have high market power. They want to maintain their market power by producing less, by raising price, or else being equal on the supply side. However, large firms are typically also more productive. So this high productivity help them to contain costs. And since they are more capable of investing in new, new technologies such as automation, and those technologies are costly. So by investing these new technologies, it helps 'em to improve productivity further.

04:50 - So if the increasing concentrations primarily driven by factors such as market power, then it's not a good thing. It's inefficient, and it will call for policies such as, antitrust regulations. But if this consequence of, more Inc or increased technology adoptions, then the policy prescription should obviously be different. You should not tax them. Instead, you should perhaps encourage 'em to do more of the technology adoption, expand their production further. So there's a recent strand of literature that our studies closely related to

05:28 - that literature argue that the rise of industry concentration is linked to technology adoptions, such as automation through an economy of scale effect, or sometimes known as network effect. And the order at the co-authors that we cite in the paper and the Uber registrable and the all, they, they all explain this idea. So the basic idea is large firm Has sufficient resources to invest in new technologies that might be too costly for small firms. And, by yeah, gaining a, a new, advantage in new technology, a large firm can grow even larger.

06:11 - So this, this is, this idea, we build on this idea. And, just to dig deeper in the specific area, of automation. Main data source that we rely on is, comp compute stat, which is a dataset that contain all the publicly listed firms. and, we construct a measure of industry concentration based on the share of sales of the top 1% of firms. we also do the same for employment, the share of employment of the top 1% of firms. And,

06:51 - we measure, automation by the number of industrial robots per thousand workers in each manufacturing industry. And the, the, the data is limited to manufacturing because, we take the robot data from the International Federation of Robotics or if r and, that data source give us mostly manufacturing, industries. And, our, if you look at the raw correlations, you construct robot den density, which is a number of robots per thousand workers. And you correlated with those, measures of industry concentration.

07:31 - You can see a significantly positive correlation between robot density at the industry level and the top 1% share in sales. But the correlation with employment concentration is, less significant. it is, statistically it's not different from zero, of course, you know, the correlations are not, necessarily causal relations. so, mainly because, you know, both robot density and the industry concentration could be driven. Some other factors, could be changes in productivity or changes in demand. So,

08:14 - we further investigate the potential causal effects of automation on industry concentration. To do that, we need, some instrumental variable, an instrumental variable in simple language is something that is, correlated with, robot density, but not directly correlated with the industry concentration. And, the idea of constructing this, I IV or instrumental variable is based on, a study by ACLU and RA in 2020. They noted that, there's a,

08:53 - a wide variation across industries of robot adoptions. Not every industry adopt robots quickly. And, there's a common set of industries like automobile in both US and Europe experienced fast robot adoptions in the past two decades. So importantly, the European economies adopted robots well ahead of the us. like Germany, France, they have, earlier, their earlier adopters of robots. So that gives us information, from the, the European robot, adoption, or you measure it by robot density in the industry should

09:40 - lead that of the US adoption. So we use the lagged European robot density in the industry as an instrument for the same, so robot density in the same industry in the us. this is, it turns out to be, a valid, and good instrument, by statistical measures. So if you do the IV this, this way, the in instrumental variable estimation, then we find that automation does have a causal positive causal effect on sales concentration measured by the top 1% firm's share. But, the causal effect on employment concentration is,

10:26 - insignificant. We try to understand what might be, might explain the link between automation and industry concentration, documented, in, in our, dataset. And for that purpose, we construct a theoretical framework, that features firms with different sizes and different levels of productivity, and they make decisions between, which technology to use, how much to produce. the technologies available are two types. One is, labor only technology that doesn't require any automation equipment. The other is, automation technology that requires both labor and automation

11:10 - equipment. And I just call it robots as inputs and robots. And the workers are, substitutable inputs, but they're not perfect substitutes just to be realistic. And we calibrate the elasticity of substitution based on other studies. Well, in the model adopting automation technology requires first purchasing a robot at the market price. But it also, in order to operate in the automation technology, it requires the firm to pay not just workers, but also the cost of fixed cost of maintaining the robots

11:50 - or keep it running, like using energy. Those we don't model. So we just assume it's a fixed cost for, using the op, automation technology. And, with this, fixed cost of automation of using automation technology, there comes a economy of scaling, fact that I just mentioned. And, large firms are able to pay the fixed cost. They're more capable of paying that, and therefore they're more likely to use the automation technology. But using that technology help them to improve productivity cuz they can produce more output for any given number of workers. And,

12:33 - that leads to an economy of scale effect. That's crucial for explaining the link with automation and industry concentration To just think a little deeper in the model mechanism, you think about on average, large firms are more productive and they're more profitable. So they're better capable of investing in this automation technology cuz they can afford to fix cost. And now when you think about a, a robot price decline, as we observe in the data, robot price decline steadily, a decline. Robot price benefits primarily those large firms that do use robots.

13:14 - A small firm doesn't use robot. If it doesn't use robot, it does not matter. a robot price decline might induce some firms at the margin to increase robot adoption, become a robot user. But those existing robot users, which are large farms, will benefit most. And the increased user robots would improve those farms labor productivity and allow the large farms to become even larger. And this, economy scale effect leads to an increase in concentration and explain the connection between robot use and, the increase in the share of top 1% firms in sales. But now come to the empirical fact that the connection between automation

14:01 - and employment concentration is not significant. We try to find, use the same approach to see the correlation or the causal relation between automation and employment concentration. We don't find any in the data. So the model has, has also correctly predicts that pattern because, for large firms that use robots, robots can substitute partially substitute for labor. And the expansion of those large farms therefore relies more on robot use than worker use. So their sales share rises quickly that that's because they're using more

14:41 - robots. When the robot price declines, they don't need to rely on workers as much. So the employment concentration does rise, but it rise by much less than sales concentration. So, this is connected to the literature I mentioned earlier. The concept of the scale economy is not new. Is this associated with new technology adoption? You know, when the large firms are more capable of investing in new technologies in general, and that allowed them to grow fast, our contribution is mainly quantitative.

15:18 - We, our paper shows that in a carefully calibrated the model with realistic features like, heterogeneous firms and who are making technology choices between automation, technology, labor only technology. And this model, if you calibrate it carefully, you can actually match some real world observation such as the one documented by the census study, recent sensor study by ular, all which is automation is highly concentrated in a few large firms, it's not widespread.

15:54 - And the ability of the model to match this firm level distribution of automation is actually, evidence we interpret as, suggesting that model is a plausible framework for addressing the link between, between automation and industry concentration. So now I come to the quantitative conclusion. we find that in the calibrated model, a 40% decline in the robot price comparable to the magnitude to observe in the past 20 years, would expl could explain about 80% of the increase

16:34 - in sales concentration in the US manufacturing sector, and also explain about 60% of the diverging trends between sales concentration and employment concentration. So, we also study the policy question, based on the Calgary model. We ask a question, should, should we tax robots? Well, our framework is able to provide an answer, because the, the model implies that large firms are more likely robot users, they have a higher markup, but markup is not a good thing. That's a potential source of inefficiency.

17:18 - So taxing robots can actually help undo part of the inefficiency related to market power. But at the same time, large firms are also more productive. Taxing robot using large firms would reallocate resources away from the more productive firms to lose less productive farms. And that reduce aggregate productivity Gain, you know, mitigating the markup distortion, you lose, aggregate productivity. And this tradeoff between markup and productivity implies

18:02 - an interior optimum of tax or subsidy rates, automation. And, with our calibration, we find that a modest subsidy of about 5% or under 5% for robot using firms would maximize social welfare. of course, we, we, we are aware that the, this particular result is specific to our calibration, although we argue that our calibration is empirically plausible.

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