Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach
AbstractThe purpose of this paper is to treat scale economies, profit-maximizing markups, economic profitability, capacity utilization and productivity growth within an integrated structural model, and to assess their interactions empirically using annual two-digit U.S. manufacturing data. Attention is focused on error biases in measuring productivity using traditional accounting procedures. An important conjecture by Robert Hall, that the coexistence of normal economic profits and positive markups of price over marginal cost imply the existence of substantial scale economies and excess capacity, is then examined using this structure. The empirical results suggest that markups in most U.S. manufacturing firms have increased over time, and tend to the countercyclical. However, procyclical capacity utilization and scale economies tend to offset the short run profit potential from markup behavior. As a result, on average economic profits are normal, but declining profitability is prevalent in most industries since the early 1970s. Also, although cost and revenue shares tend to be approximately equal, the error biases in standard productivity growth measures resulting from input fixity and scale economies are substantial, particularly over business cycles.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3355.
Date of creation: May 1990
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statistics
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.