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Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms

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  • Bruno Crépon
  • Rozen Desplatz
  • Jacques Mairesse

Abstract

This paper presents a model for estimating both the magnitude of price-cost margins and the extent of rent sharing. The model generalizes Robert Hall's model, relating the conventional measure of total factor productivity (the "Solow residual") to the degree of imperfect competition in product markets, by also allowing for the possibility of imperfect labor markets. It does so by assuming that the firm wages and level of employment are jointly determined according to an efficient bargaining scheme between the firm and its workers. One attractive aspect of Hall's framework is that it does not require a measure of the user cost of capital to assess the magnitude of markups, in contrast to more conventional analyses. Similarly, another interesting feature of our extended framework is that it does not require a measure of the alternative external wage to estimate the degree of workers' bargaining power, contrary to most studies on rent sharing. Our model is estimated on a panel of French manufacturing firms using the Generalized Method of Moments (GMM). We find that the lack of explicit consideration of labor market imperfection results in a large underestimation of the firm true markup, corresponding to the omission of the part of the firm rent captured by workers. Our estimate of average rent sharing is about 0.6, while our estimate of average price-cost margins is of an order of magnitude of 1.4, to be compared to 1.1 only, if rent sharing is ignored.

Suggested Citation

  • Bruno Crépon & Rozen Desplatz & Jacques Mairesse, 2005. "Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms," Annals of Economics and Statistics, GENES, issue 79-80, pages 583-610.
  • Handle: RePEc:adr:anecst:y:2005:i:79-80:p:583-610
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    Cited by:

    1. repec:spr:empeco:v:53:y:2017:i:2:d:10.1007_s00181-016-1143-z is not listed on IDEAS
    2. Antonio Bassanetti & Roberto Torrini & Francesco Zollino, "undated". "Changing Institutions in the European Market: the Impact on Mark-ups and Rents Allocation," Working Papers 11, Department of the Treasury, Ministry of the Economy and of Finance.
    3. Perekhozhuk, O. & Chezhia, G. & Glauben, T., 2018. "Testing for oligopsony power in the Kazakh grain processing industry: A Hall approach," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 275964, International Association of Agricultural Economists.
    4. Sabien Dobbelaere & Jacques Mairesse, 2010. "Comparing Micro-evidence on Rent Sharing from Three Different Approaches," NBER Working Papers 16220, National Bureau of Economic Research, Inc.
    5. Hervé Boulhol, 2008. "The Convergence of Price–cost Margins," Open Economies Review, Springer, vol. 19(2), pages 221-240, April.
    6. Philip Du Caju & François Rycx & Ilan Tojerow, 2011. "Wage Structure Effects of International Trade: Evidence from a Small Open Economy," Working Papers CEB 11-011, ULB -- Universite Libre de Bruxelles.
    7. Masuch, Klaus & Anderton, Robert & Setzer, Ralph & Benalal, Nicholai, 2018. "Structural policies in the euro area," Occasional Paper Series 210, European Central Bank.
    8. Giannis Karagiannis & Magnus Kellermann & Simon Pröll & Klaus Salhofer, 2018. "Markups and product differentiation in the German brewing sector," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 61-76, December.
    9. Pal, Rupayan & Rathore, Udayan, 2016. "Estimating workers’ bargaining power and firms’ markup in India: Implications of reforms and labour regulations," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1118-1135.
    10. repec:eee:labeco:v:52:y:2018:i:c:p:18-26 is not listed on IDEAS
    11. João Amador & Ana Cristina Soares, 2018. "Competition in the Portuguese economy: insights from a profit elasticity approach," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(2), pages 339-365, May.
    12. Sabien Dobbelaere & Jacques Mairesse, 2013. "Panel data estimates of the production function and product and labor market imperfections," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(1), pages 1-46, January.
    13. Flora Bellone & Patrick Musso & Lionel Nesta & Frédéric Warzynski, 2009. "L'effet pro-concurrentiel de l'intégration européenne. Une analyse de l'évolution des taux de marge dans les industries manufacturières françaises," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 139-163.
    14. Dobbelaere, Sabien & Kiyota, Kozo & Mairesse, Jacques, 2015. "Product and labor market imperfections and scale economies: Micro-evidence on France, Japan and the Netherlands," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 290-322.
    15. Dobbelaere, Sabien & Mairesse, Jacques, 2018. "Comparing micro-evidence on rent sharing from two different econometric models," Labour Economics, Elsevier, vol. 52(C), pages 18-26.
    16. Carlo Altomonte & Marcella Nicolini & Armando Rungi & Laura Ogliari, 2010. "Assessing the Competitive Behaviour of Firms in the Single Market: A Micro-based Approach," European Economy - Economic Papers 2008 - 2015 409, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    17. Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011. "Imports as Product and Labour Market Discipline," British Journal of Industrial Relations, London School of Economics, vol. 49(2), pages 331-361, June.
    18. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization ?," Cahiers de la Maison des Sciences Economiques bla06007, Université Panthéon-Sorbonne (Paris 1).
    19. S. Dobbelaere, 2003. "Joint Estimation of Price-Cost Margins and Union Bargaining Power for Belgian Manufacturing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/171, Ghent University, Faculty of Economics and Business Administration.
    20. Ana Cristina Soares & João Amador, 2013. "Competition in the portuguese economy: Estimated price-cost margins under imperfect labour markets," Working Papers w201308, Banco de Portugal, Economics and Research Department.
    21. Sara Amoroso & Peter M. Kort & Bertrand Melenberg & Joseph Plasmans & Mark Vancauteren, 2010. "Firm Level Productivity under Imperfect Competition in Output and Labor Markets," CESifo Working Paper Series 3082, CESifo Group Munich.
    22. Stefano Schiavo & Lionel Nesta, 2017. "International Competition and Rent Sharing in French Manufacturing," DEM Working Papers 2017/07, Department of Economics and Management.
    23. Dobbelaere, Sabien & Mairesse, Jacques, 2005. "Cross-Sectional Heterogeneity in Price-Cost Margins and the Extent of Rent Sharing at the Sector and Firm Level in France," IZA Discussion Papers 1898, Institute for the Study of Labor (IZA).
    24. Hervé Boulhol, 2006. "Why Haven't Price-Cost Margins Decreased with Globalization ?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084267, HAL.

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