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  4. Summer 2019
  5. Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

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Abstract

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the "structure-conduct-performance" literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.

Citation

Berry, Steven, Martin Gaynor, and Fiona Scott Morton. 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization." Journal of Economic Perspectives, 33 (3): 44-68. DOI: 10.1257/jep.33.3.44

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • K21 Antitrust Law
  • L13 Oligopoly and Other Imperfect Markets

Ma

  • Posted by Jenn ling Ting
  • Posted on 9/26/2019 5:22:50 PM
Very interesting topic in economic point of view which seeking of balance between consumer welfare and firm profit making. As all know, the nature of business is maximizing profit, where price will be set as high as possible as long as consumer willing to pay for it. Case of Apple Inc's iphone may precisely demonstrate this situation, especially their pricing modeling strategy which heavily base on China sales volume forecasting for latest and previous model of iphone. This is where the classic economic theory sunk, cause when price increase, the volume of sales increase as well!

Posted by CHEN Yang

  • Posted by Yang Chen
  • Posted on 11/21/2019 9:41:27 PM
Attracted by the title and then read it very seriously. It is the third paper about IO I read after I found myself really loving IO. As a student, I just want to tell myself, don't give up.
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