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Tobin's q, Unionization, and the Concentration-Profits Relationship

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Author Info
Michael A. Salinger
Abstract

This article uses Tobin's q, the ratio of the market value of a firm to the replacement value of its physical assets, to measure monopoly power and to examine the relationship between market structure and profitability. Tobin's q is a better measure of monopoly profits than indices of single-period profitability because it measures long-run monopoly power. In addition, it is subject to less measurement error and it contains an adjustment for risk. The relationship between q and long-run monopoly power is established. Provided that all inputs are supplied competitively, q should be highly sensitive to even small amounts of monopoly power. Since the level of q is generally not high in the American economy, the result suggests either that monopoly power is absent or that unions manage to capture monopoly rents. Empirical tests of the relationship between Tobin's q and measures of market structure and unionization provide evidence that unions do capture most monopoly rents.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 15 (1984)
Issue (Month): 2 (Summer)
Pages: 159-170
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Handle: RePEc:rje:randje:v:15:y:1984:i:summer:p:159-170

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  3. Laurence J. Kotlikoff & Jagadeesh Gokhale, 1991. "Estimating a firm's age-productivity profile using the present value of workers' earnings," Working Paper 9119, Federal Reserve Bank of Cleveland. [Downloadable!]
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  4. Warren, Paul, 2005. "Rentabilité des entreprises sous contrôle canadien par rapport aux entreprises sous contrôle américain," Série de documents de recherche sur l'analyse économique (AE) 2005030f, Statistics Canada, Direction des études analytiques. [Downloadable!]
  5. Matthias R. Greuner, David R. Kamerschen, Peter G. Klein, 2000. "The Competitive Effects of Advertising in the US Automobile Industry, 1970–94," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 7(3), pages 245-261, November. [Downloadable!] (restricted)
  6. Robert S. Chirinko, 1987. "Intertemporal Constraints, Shadow Prices, and Financial Asset Values," NBER Working Papers 2247, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Richard B. Freeman & Morris M. Kleiner, 1994. "Do Unions Make Enterprises Insolvent?," NBER Working Papers 4797, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Casey Ichniowski, 1990. "Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses," NBER Working Papers 3449, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Warren, Paul, 2005. "Profitability of Canadian- Versus U.S.-controlled Enterprises," Economic Analysis (EA) Research Paper Series 2005030e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
  11. Gary Gorton & Frank Schmid, 2002. "Class struggle inside the firm: a study of German codetermination," Working Papers 2000-025, Federal Reserve Bank of St. Louis. [Downloadable!]
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