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Productivity, returns to scale and product differentiation in the retail trade industry: an empirical analysis using Japanese firm-level data

  • Atsuyuki Kato


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    This paper examines productivity and returns to scale under the assumption of monopolistic competition using Japanese firm-level data. Although differentiating products (services) is considered important in firms’ strategies and productivity growth, it has not been sufficiently investigated in previous studies. In this paper, we study this issue in two retail trade industries, department stores and supermarkets, applying the model of Melitz ( 2000 ). Our results indicate that the standard production function is not relevant to estimate productivity in imperfectly competitive markets. It also suggests that the market structure should be carefully considered in productivity analysis. In addition, product differentiation has a positive effect on firms’ revenue for the supermarkets. Furthermore, the retail trade industries possibly follow increasing returns to scale. Thus, policy measures that promote economies of scale and product differentiation should contribute to further growth in these industries. In addition, the results indicate that the regulatory reform of the retail trade industry in 2000 increased the gap between winners and losers in terms of productivity. Copyright Springer Science+Business Media, LLC 2012

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    Article provided by Springer in its journal Journal of Productivity Analysis.

    Volume (Year): 38 (2012)
    Issue (Month): 3 (December)
    Pages: 345-353

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    Handle: RePEc:kap:jproda:v:38:y:2012:i:3:p:345-353
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    1. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-71, October.
    2. Klette, T.J., 1998. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Memorandum 15/1998, Oslo University, Department of Economics.
    3. Ralf Martin, 2010. "Productivity Spreads, Market Power Spreads and Trade," CEP Discussion Papers dp0997, Centre for Economic Performance, LSE.
    4. Tor Jakob Klette & Zvi Griliches, 1994. "The Inconsistency of Common Scales Estimators when Output Prices are Unobserved and Endogenous," Discussion Papers 127, Statistics Norway, Research Department.
    5. KIM Young Gak & KWON Hyeog Ug & FUKAO Kyoji, 2007. "Entry and Exit of Companies and Establishments, and Productivity at the Industry Level (Japanese)," Discussion Papers (Japanese) 07022, Research Institute of Economy, Trade and Industry (RIETI).
    6. Ralf Martin, 2005. "Productivity Dispersion, Competition and Productivity Measurement," CEP Discussion Papers dp0692, Centre for Economic Performance, LSE.
    7. Timothy J. Richards & Stephen F. Hamilton, 2006. "Rivalry in Price and Variety among Supermarket Retailers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 710-726.
    8. KWON Hyeog Ug & NARITA Futoshi & NARITA Machiko, 2009. "Resource Reallocation and Zombie Lending in Japan in the '90s," Discussion papers 09052, Research Institute of Economy, Trade and Industry (RIETI).
    9. Wooldridge, Jeffrey M., 2009. "On estimating firm-level production functions using proxy variables to control for unobservables," Economics Letters, Elsevier, vol. 104(3), pages 112-114, September.
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