Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. May 25, 1998 Terms of use: Documents inAbstract: This paper presents a somewhat new econometric framework that permits simultaneous estimation of price-cost margins, scale economies and productivity from a panel of establishment data. The econometric model contains only a few, economically interesting parameters to be estimated, but it is nevertheless consistent with a°exible (translog) underlying technology, quasi-¯xed capital and the presence of persistent di®erences in productivity between establishments. The econometric framework is applied to study market power, scale economies and productivity di®erences in a number of manufacturing industries in Norway. The results reveal statistically signi¯cant, but quite small, margins between price and marginal costs in most manufacturing industries. No industry exhibits increasing returns to scale; the average plant in most industries seems to face constant or moderately decreasing returns to scale. There is more variation in market power within the fairly narrow industry groups investigated compared to the variation between the industry groups. The results show that¯rms with higher market power tend to be less productive.JEL classi¯cation: D40, C23.

Markup cyclicality and input factor adjustments

“…The model here does not incorporate proxies for industry sector competitiveness, and thereby we are unable to conclude further on firms' potential for strategic price-setting behaviour. The problem is, as has been pointed out by others (see for example Klette, 1999), that even at sector levels as used here, there will be too much heterogeneity to perform adequate analyses of these phenomena and underlying explanations.…”

“…This assumption is supported by the findings in 15 We return later to extensions with the two-step first-differenced GMM estimator, including a system estimator. Klette (1999) that increasing returns to scale are not a widespread phenomenon in Norwegian manufacturing industries.…”

“…In another study, using larger panel data sets from Norwegian manufacturing industries, Klette (1999) finds μ 0 greater than unity, indicating moderate but statistically significant market power. Petersen (1986, 1987), Chirinko and Fazzari (1994) and Bottasso, Galeotti and Sembenelli (1999).…”

“…Using the estimate of s = 40 in the formula for adjustment costs of labour, G L , and assuming a labour cost adjustment of 5% of the work force, this will correspond to a production loss of 5%. In 16 See Klette (1999), p. 470, for a more thorough discussion of this in industry sector studies. 17 The main unions were part of the central union, LO.…”

Empiricism Meets Theory: Is the Boone-Indicator Applicable?

“…However, the practical importance of these counterexamples is still unknown. Despite these drawbacks, the PCM is still a popular measure in empirical research (see, for example, Pruteanu-Podpiera et al, 2007;Maudos and Fernandez de Guevara, 2006;Aghion et al, 2005;Nevo, 2001;Klette, 1999). Boone (2008a) extends the existing set of competition measures by suggesting an indicator that relies on Relative Profit Differences (RPD).…”