Oligopolies, Prices, Output, and Productivity

Abstract

American industries have grown more concentrated over the last forty years. In the absence of productivity innovation, this should lead to price hikes and output reductions, decreasing consumer welfare. Using public data from 1972-2012, I use price data to disentangle revenue from output. Difference-in-difference estimates show that industry concentration increases are positively correlated to productivity and output growth, uncorrelated with price changes and overall payroll, and negatively correlated with labor's revenue share. I rationalize these results in a simple model. Productive industries (with growing oligopolists) expand real output and hold down prices, while maintaining or reducing their workforces.

Previously circulated as "Oligopolies, Prices, and Quantities: Has Industry Concentration Increased Price and Restricted Output?"

Keywords: Market Power, Market Concentration, Productivity, Prices, Output

JEL Classification: L11, L13, D24, E31, L4