What Creates Abnormal Profits: Collusion, Efficiency or Strategy?

Griffiths, W., Jensen, P. and Webster, E. (2011) What Creates Abnormal Profits? Scottish Journal of Political Economy, 58(3) 323-346

32 Pages Posted: 18 Nov 2021

See all articles by Elizabeth Webster

Elizabeth Webster

Swinburne University of Technology; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

William E. Griffiths

University of Melbourne - Department of Economics

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Date Written: October 29, 2021

Abstract

The debate regarding the determinants of persistent abnormal profits is re-examined using a new approach to the measurement of profits which explicitly accounts for intangible capital. Abnormal profits are estimated using data on tangible and intangible capital for 2800 Australian firms over a 18-year period. The determinants of abnormal profits are then estimated using variables collated from separate accounting and administrative company records data as well as an in-house survey of innovation and management practices. Our results imply that firm-specific factors relating to efficiency and strategy are much larger than the industry-specific effects of collusion

Keywords: Monopoly profits; abnormal profits, collusion, competition, efficiency

JEL Classification: O30; O34

Suggested Citation

Webster, Elizabeth M. and Griffiths, William and Jensen, Paul H., What Creates Abnormal Profits: Collusion, Efficiency or Strategy? (October 29, 2021). Griffiths, W., Jensen, P. and Webster, E. (2011) What Creates Abnormal Profits? Scottish Journal of Political Economy, 58(3) 323-346, Available at SSRN: https://ssrn.com/abstract=3952305 or http://dx.doi.org/10.2139/ssrn.3952305

Elizabeth M. Webster (Contact Author)

Swinburne University of Technology ( email )

Cnr Wakefield and William Streets, Hawthorn Victor
3122 Victoria, Victoria 3122
Australia

University of Melbourne - Melbourne Institute: Applied Economic & Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

William Griffiths

University of Melbourne - Department of Economics ( email )

Melbourne, 3010
Australia
+61 3 83443622 (Phone)
+61 3 83446899 (Fax)

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

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