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Testing the Superstar Firm Hypothesis

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  • Alexander Schiersch
  • Caroline Stiel

Abstract

The superstar firms model provides a compelling explanation for two simultaneously occurring phenomena: the rise of concentration in industries and the fall of labor shares. Our empirical analysis confirms two of the underlying assumptions of the model: the market share increases and the labor share decreases with increasing firm-level total factor productivity, providing support for the superstar firms’ hypothesis. However, we find no evidence for the underlying mechanism of the model, the distribution of fixed labor costs. Instead, we observe increasing returns to scale that also explain lower labor shares of larger firms.

Suggested Citation

  • Alexander Schiersch & Caroline Stiel, 2020. "Testing the Superstar Firm Hypothesis," Discussion Papers of DIW Berlin 1849, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1849
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    References listed on IDEAS

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    More about this item

    Keywords

    superstar firms; total factor productivity; labor share; market share; firm size;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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