Productivity, Prices and Productivity in Manufacturing: a Demsetzian Perspective
47 Pages Posted: 20 Aug 2020 Last revised: 26 Jan 2021
Date Written: July 19, 2020
Concentration has increased since the 1980s in a variety of industries. Price-cost margins have also increased over this period. These developments have raised concern about weakened competition and resulting harm to consumers. Calls for tougher antitrust enforcement have become louder. Many years ago Harold Demsetz (1973) cautioned against inferring weakened competition from a confluence of rising margins and concentration. He argued that productivity differences across firms were a potential “omitted variable.” This paper provides evidence on the interplay between concentration, prices and productivity across several hundred US manufacturing industries over two 15 year periods from 1982-2012. The consistent pattern is that high and rising concentration has been on average associated with better productivity growth. Rising concentration has also been associated with widening margins of price-cost margins. I show that widening margins generally, whether related to concentration or not, are mainly driven by productivity gains, not prices. as in the competitive process outlined in Demsetz (1973). Some skepticism about tougher antitrust policy may be warranted, since this would risk harm to productivity without benefiting consumers.
Keywords: Concentration, Prices, Productivity, Margins, Manufacturing, Antitrust Policy
JEL Classification: [L11, L16, L40, D24, D4, K21
Suggested Citation: Suggested Citation