Working Paper: NBER ID: w26007
Authors: Steven T. Berry; Martin Gaynor; Fiona Scott Morton
Abstract: This paper 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 cost 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.
Keywords: markups; industrial organization; antitrust enforcement
JEL Codes: L00; L1; L4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rising fixed and sunk costs (G31) | fewer firms in a market (L19) |
| fewer firms in a market (L19) | softer competition (L13) |
| softer competition (L13) | higher prices (D49) |
| higher prices (D49) | reduce consumer welfare (D11) |
| higher fixed costs (L11) | increased markups (D43) |
| higher fixed costs (L11) | improved products or production technology (O49) |
| improved products or production technology (O49) | lowers marginal costs (D40) |
| mergers (G34) | increase markups (D43) |
| mergers (G34) | higher prices (D49) |
| higher prices (D49) | no corresponding consumer benefits (D19) |
| rising markups (D43) | ambiguous effects (D91) |
| antitrust enforcement (K21) | address potential harms (D18) |