Email: support@essaywriterpros.com
Call Us: US - +1 845 478 5244 | UK - +44 20 7193 7850 | AUS - +61 2 8005 4826

The Economic Policy

From a policy perspective it is reassuring if there is no increase in firm inequality. But this does not mean that market power is irrelevant. In particular, it is possible that the returns of superstar firms are still driven by market power. This concern is relevant to the use of firm-level mark-ups to measure the increase in market power over time (De Loecker and Eeckhout 2017, and Traina 2018). This approach relies on the insight that, for a given stock of capital, the firm will adjust its variable inputs, and hence its mark-ups, in response to industry competition and the elasticity of output to the variable input. Given industry-level estimates of the elasticity of output, and firm-level estimates in productivity, revenues and costs, we can calculate each firm’s mark-up each year. 

In calculating mark-ups, it is important to correctly characterise the stock of capital and distinguish between investment expenditures and expenditures that contribute to variable costs. De Loecker and Eeckhout (2017) assume that the only variable costs are the cost of goods sold (COGS), while Traina (2018) assumes that all operating expenses (OPEX) are variable costs. When we disentangle the effect of investment in intellectual and organisational capital from variable costs of production, following the approach in Peters and Taylor (2017), we find that mark-ups (OPEX with PT correction in Figure 3) have been increasing over time for US listed firms, but at a lower rate than reported by De Loecker and Eeckhout