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Tobin's q, Unionization, and the Concentration-Profits Relationship


  • Michael A. Salinger


This article uses Tobin's q, the ratio of the market value of a firm to the replacement value of its physical assets, to measure monopoly power and to examine the relationship between market structure and profitability. Tobin's q is a better measure of monopoly profits than indices of single-period profitability because it measures long-run monopoly power. In addition, it is subject to less measurement error and it contains an adjustment for risk. The relationship between q and long-run monopoly power is established. Provided that all inputs are supplied competitively, q should be highly sensitive to even small amounts of monopoly power. Since the level of q is generally not high in the American economy, the result suggests either that monopoly power is absent or that unions manage to capture monopoly rents. Empirical tests of the relationship between Tobin's q and measures of market structure and unionization provide evidence that unions do capture most monopoly rents.

Suggested Citation

  • Michael A. Salinger, 1984. "Tobin's q, Unionization, and the Concentration-Profits Relationship," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 159-170, Summer.
  • Handle: RePEc:rje:randje:v:15:y:1984:i:summer:p:159-170

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    References listed on IDEAS

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    1. Chang, Shao-Chi & Wang, Chi-Feng, 2007. "The effect of product diversification strategies on the relationship between international diversification and firm performance," Journal of World Business, Elsevier, vol. 42(1), pages 61-79, March.
    2. Kanellos Toudas & Athanasios Bellas, 2014. "Corporate Governance and its Effect on Firm Value and Stock Returns of Listed Companies on the Athens Stock Exchange," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 58-80.
    3. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    4. Richard B. Freeman & Morris M. Kleiner, 1999. "Do Unions Make Enterprises Insolvent?," ILR Review, Cornell University, ILR School, vol. 52(4), pages 510-527, July.
    5. Khaled Elsayed, 2007. "Does CEO Duality Really Affect Corporate Performance?," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(6), pages 1203-1214, November.
    6. John S. Strong & John R. Meyer, 1990. "Sustaining Investment, Discretionary Investment, and Valuation: A Residual Funds Study of the Paper Industry," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 127-148 National Bureau of Economic Research, Inc.
    7. Casey Ichniowski, 1990. "Human Resource Management Systems and the Performance of U.S. Manufacturing Businesses," NBER Working Papers 3449, National Bureau of Economic Research, Inc.
    8. Warren, Paul, 2005. "Profitability of Canadian- Versus U.S.-controlled Enterprises," Economic Analysis (EA) Research Paper Series 2005030e, Statistics Canada, Analytical Studies Branch.
    9. Gary Gorton & Frank Schmid, 2000. "Class Struggle Inside the Firm: A Study of German Codetermination," NBER Working Papers 7945, National Bureau of Economic Research, Inc.
    10. Laurence J. Kotlikoff & Jagadeesh Gokhale, 1992. "Estimating a Firm's Age-Productivity Profile Using the Present Value of Workers' Earnings," The Quarterly Journal of Economics, Oxford University Press, vol. 107(4), pages 1215-1242.
    11. McGahan, Anita M. & Silverman, Brian S., 2006. "Profiting from technological innovation by others: The effect of competitor patenting on firm value," Research Policy, Elsevier, vol. 35(8), pages 1222-1242, October.
    12. Robert S. Chirinko, 1987. "Intertemporal Constraints, Shadow Prices, and Financial Asset Values," NBER Working Papers 2247, National Bureau of Economic Research, Inc.
    13. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1988. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 70(1), pages 55-66, February.
    14. Lokshin, Boris & Mohnen, Pierre, 2013. "Do R&D tax incentives lead to higher wages for R&D workers? Evidence from The Netherlands," Research Policy, Elsevier, vol. 42(3), pages 823-830.
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    16. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Interindustry Wage Differentials Justify Strategic Trade Policy?," NBER Chapters,in: Trade Policies for International Competitiveness, pages 85-124 National Bureau of Economic Research, Inc.
    17. Fallick, Bruce C & Hassett, Kevin A, 1999. "Investment and Union Certification," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 570-582, July.
    18. Ana María Sabater & Joaquina Laffarga, 2004. "Comportamiento Diario Del Mercado Continuo Español Ante Un Evento Laboral: Un Analisis Empirico," Working Papers. Serie EC 2004-19, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    19. Alfredo Martín-Oliver & Vicente Salas-Fumas, 2007. "How do intangible assets create economic value? an application to banks," Working Papers 0730, Banco de España;Working Papers Homepage.
    20. Warren, Paul, 2005. "Rentabilite des entreprises sous controle canadien par rapport aux entreprises sous controle americain," Serie de documents de recherche sur l'analyse economique (AE) 2005030f, Statistics Canada, Direction des etudes analytiques.
    21. Anandhi S. Bharadwaj & Sundar G. Bharadwaj & Benn R. Konsynski, 1999. "Information Technology Effects on Firm Performance as Measured by Tobin's q," Management Science, INFORMS, vol. 45(7), pages 1008-1024, July.
    22. Lokshin, Boris & Mohnen, Pierre, 2008. "Wage effects of R&D tax incentives:Evidence from the Netherlands," MERIT Working Papers 034, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    23. Klasa, Sandy & Maxwell, William F. & Ortiz-Molina, Hernán, 2009. "The strategic use of corporate cash holdings in collective bargaining with labor unions," Journal of Financial Economics, Elsevier, vol. 92(3), pages 421-442, June.
    24. Chung, Kee H. & Wright, Peter & Kedia, Ben, 2003. "Corporate governance and market valuation of capital and R&D investments," Review of Financial Economics, Elsevier, vol. 12(2), pages 161-172.
    25. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.

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