Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

By Steven T. Berry, M. Gaynor, F. S. Morton. Journal of Economic Perspectives, 2019

210 citations recorded by the source corpus.

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the “structure-conduct-performance” literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b6458b9c9e2ec5be40976476cec4d0b51a59c865

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Citations in the corpus

The Elusive Explanation for the Declining Labor Share (2021, background): “Berry et al. (2019) and Syverson (2019) argue that among the potential explanations for the observed increase in concentration, some would be associated with reduced competition but others would go hand in hand with increased competition.”