The impact on the dispersion in markups is generally not significant, except that firms aged 25 and above have higher markups using DLW (Index 8 of Table 9).

Regulation policies seem to generate results similar to those of enforcement (Index 1 and 2 of Table 10). They increase productivity regardless of the methodology applied. Interestingly, those that we coded as complexifying generate significant productivity improvements. In line with our earlier hypothesis, complexifying regulations are related to quality upgrading. Unlike enforcement, regulations that make processes more complex also increase dispersion in markups, although this is not a robust finding across methodologies. This result can mainly be explained by improvements in quality upgrading leading to higher profits, without any remedial action in terms of marginal costs.

As we disentangle these aggregate effects by looking at the firm productivity profiles, we find that leaders in the productivity distribution are more responsive to any regulation in terms of TFPR (Index 1 and 2 of Table 11). In other words, the more productive a firm is compared to its market peers, the more it benefits from regulation. The introduction of any regulation is associated with an increase in TFPR 26%-42% for firms in the 85th percentile compared to that of firms in markets unaffected by any regulation. These results appear to be driven by middle-aged firms, above 5 and below 15 years (Index 1 to 8 of Table 14).

The results hold equally well, though they are slightly smaller, for firms whose regulatory requirements have been simplified. Here a new layer of information is introduced: Laggards in productivity decrease product quality. Apparently low-productivity firms are unable to escape competition when it becomes easier for new firms to enter the market (Index 1 and 2 of Table 12). Disaggregated by age, the most productive middle-aged firms see a robust rise in TFPR while the oldest firms (more than 25 years) instead incur TFPR losses (Index 1 to 8 of Table 16). It is not always more experienced firms that innovate to escape competition. Competitive pressure on older firms seems to lead to productivity losses until ultimately they exit the market; meanwhile, productive middle-aged firms retain or increase market share.

The results also hold if we look only at firms whose regulatory requirements became more complex, and they seem to be larger (Index 1 and 2 of Table 13). This type of regulation stimulates higher product quality, which enables firms to earn larger profits—evidenced by higher markups (though this has not been confirmed by a DLW robustness check) and more profit measured as the log of price cost margins. It is also possible that in meeting the higher quality standards imposed by the new regulations, firms finance those efforts by charging more, which enables them to raise product quality.

Disaggregation by age suggests that older firms are better able to translate more complex regulatory requirements into TFPR gains (Index 1 to 8 of Table 18). Markups seem to rise significantly for older market leaders (Table 19). Only experienced and productive firms increase markups, which suggests that they acquire more market power when con19