The Rise of Star Firms: Intangible Capital and Competition
82 Pages Posted: 26 Apr 2019 Last revised: 13 Jan 2020
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The Rise of Star Firms: Intangible Capital and Competition
The Rise of Star Firms: Intangible Capital and Competition
Date Written: December 20, 2019
Abstract
There is a divergence in the returns of top-performing (star) firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns about their market power. We show that the divergence is explained by the mis-measurement of intangible capital. While star status is associated with greater market power, this association is decreasing over time and especially in industries with high intangible capital investment. Moreover, star firms have higher output and investment per dollar of invested capital at every level of pricing power and are not differentially affected by exogenous competitive shocks than other firms. Our findings suggest that concerns about star firms using their market power in inefficient and welfare reducing ways may be overstated. Some exceptional firms may pose concerns due to their potential to foreclose competition in the future.
Keywords: star firms, intangible capital, organizational capital, industry concentration, ROIC, capital expenditure
JEL Classification: G30, G31, G32, L22, L23, L25
Suggested Citation: Suggested Citation