Mark-up, Productivity and Imperfect Competition: An empirical analysis of the Japanese retail trade industry
AbstractThis paper examines mark-up and productivity of retail trade industries under imperfect competition. Applying a newly developed approach by Martin (2010) to Japanese retail trade firm data, we estimate the firm-specific mark-up and productivity without price information and discuss their dispersion. Our results reveal that some assumptions largely used in productivity analysis such as constant returns to scale and perfect competition possibly bias estimates of productivity. Higher mark-up do not always mean higher productivity while firms with lower mark-ups are less productive. Relative levels of firm-specific mark-up and productivity are persistent. The performance of mark-up and productivity are heterogeneous across various retail trade industries. Among them, food retailers have both lower market power and lower productivity. Furthermore, regression results indicate that effects of deterministic factors on mark-ups do not coincide with those of productivity. It implies that competition-friendly policies possibly lead to unsuccessful results where firms pursue profit maximisation by pursuing pricing power rather than by raising productivity. Ignoring market power may produce misunderstandings concerning how various factors affect productivity and may thus lead to misleading policy implications.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 10031.
Length: 38 pages
Date of creation: Jun 2010
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-18 (All new papers)
- NEP-BEC-2010-06-18 (Business Economics)
- NEP-EFF-2010-06-18 (Efficiency & Productivity)
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- KATO Atsuyuki & KODAMA Naomi, 2011. "Markups, Productivity, and External Market Development: An empirical analysis using SME data in the service industry," Discussion papers 11057, Research Institute of Economy, Trade and Industry (RIETI).
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