The contributions of productivity, price changes and firm size to profitability

Abstract

Sources of profit change for Telstra, Australia's largest telecommunications firm, are examined. A new method allows for changes in a firm's profits to be broken down into separate effects due to productivity change, price changes and growth in the firm's size. This in turn allows us to calculate the distribution of the benefits of productivity improvements between consumers, labour and shareholders. The results show that around half the benefits from Telstra's productivity improvements from 1984 to 1994 were passed on to consumers in the form of real price reductions.JEL Classification: C43, D24

Exact decomposition of the Fisher ideal total factor productivity index

“…Grifell-Tatjé and Lovell 1999;and Lawrence et al 2006). In this section we shed some new light on this connection from the perspective of the decomposition proposed in Sect.…”

MEASURING THE ALLOCATION OF ESKOM'S PRODUCTIVITY DIVIDEND1

“…This paper applies the firm‐level decomposition method, a summary of which is presented in this section. A full exposition of the methodology can be found in Lawrence et al. (2006).…”

“…In this paper we apply the methodology of Lawrence et al. (2006) and Lawrence and Richards (2004) to determine the contributions of productivity and price changes to changes in Eskom's profitability over time.…”

Decomposing the dividend

“…(4) is analogous to a decomposition of profit found in the business literature in which the price effect reflects the ability to pass through input price changes, as Miller (1984) explains. 10 Our decomposition of dividend variation is structurally similar to the decomposition of the variation in the gross return to capital defined in Lawrence et al (2003) and defined in our notation as G = π + w K K.…”