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Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

Steven T. Berry, Martin Gaynor, Fiona Scott Morton

NBER Working Paper No. 26007
Issued in June 2019
NBER Program(s):The Industrial Organization Program

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.

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Document Object Identifier (DOI): 10.3386/w26007

Published: 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.

 
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