Do Increasing Markups Matter? Lessons from Empirical Industrial Organization
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.
We wish to thank Al Klevorick and editors at the Journal of Economics Perspectives—Enrico Moretti, Gordon Hanson, and managing editor Tim Taylor—for helpful comments and suggestions that substantially improved the paper. The usual caveat applies. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
1) I received no financial support for the research presented in this paper.
2) I have no close relatives or partners for whom there is anything to disclose.Fiona Scott Morton
Fiona Scott Morton engages in consulting on issues related to antitrust and innovation. The research reported in this paper is independent academic work and has not been funded by any entity apart from Yale University.
Steven Berry & Martin Gaynor & Fiona Scott Morton, 2019. "Do Increasing Markups Matter? Lessons from Empirical Industrial Organization," Journal of Economic Perspectives, vol 33(3), pages 44-68. citation courtesy of