Testing the Superstar Firm Hypothesis

23 Pages Posted: 29 Feb 2020

See all articles by Alexander Schiersch

Alexander Schiersch

German Institute for Economic Research (DIW Berlin)

Caroline Stiel

German Institute for Economic Research (DIW Berlin)

Date Written: February 2020

Abstract

The superstar firms model provides a compelling explanation for two simultaneously occurring phenomena: the rise of concentration in industries and the fall of labor shares. Our empirical analysis confirms two of the underlying assumptions of the model: the market share increases and the labor share decreases with increasing firm-level total factor productivity, providing support for the superstar firms’ hypothesis. However, we find no evidence for the underlying mechanism of the model, the distribution of fixed labor costs. Instead, we observe increasing returns to scale that also explain lower labor shares of larger firms.

Keywords: Superstar firms, total factor productivity, labor share, market share, firm size

JEL Classification: D24, E20, L11

Suggested Citation

Schiersch, Alexander and Stiel, Caroline, Testing the Superstar Firm Hypothesis (February 2020). DIW Berlin Discussion Paper No. 1849, Available at SSRN: https://ssrn.com/abstract=3545202 or http://dx.doi.org/10.2139/ssrn.3545202

Alexander Schiersch (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Caroline Stiel

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

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