Similarities and Differences between the Manufacturing and the Service Sectors: An empirical analysis of Japanese automobile related industries

This paper examines the similarities and differences between the manufacturing and the service sectors in terms of market power and productivity dispersion, using data of Japanese automobile manufacturers and dealers. Applying a newly developed approach proposed by Martin (2010), we estimate the firm-specific productivity and mark-up under imperfect competition, and discuss features of them by industry. From those estimates, we find that both industries have similar relations between productivity and mark-up, and their transition probabilities are almost the same. On the other hand, the roles of industries in the production process or the conditions of market competition are different between those industries. In addition, the relations between business scale and productivity are conflicting. As a whole, the implicit assumption that the service industries are structurally different from manufacturing is controversial. However, ignoring the differences in the conditions of their market competition possibly gives significant bias to the policy implications.