JBNST - Vol. 241/5-6 - 2021

This paper presents an analysis of the recent developments of average market power in Europe by using a broad firm-level database for EU member states. To indicate competitive pressure at the firm-level, markups are estimated following De Loecker, J. (2011). Recovering markups from production data. Int. J. Ind. Organ. 29: 350–355, and De Loecker, J. and Warzynski, F. (2012). Markups and firm-level export status. Am. Econ. Rev. 102: 2437–2471. The analysis reveals a sharp drop in markups during the crisis, followed by a post-crisis increase. The European average has not yet reached its pre-crisis level, which is in contrast to results for the US, where average markups have climbed to pre-crisis levels already in 2011. There is significant heterogeneity among European economies and the pre-crisis levels do have been exceeded in some countries.

Several recent studies show that market concentration in the US has increased over time, with firm profits increasing in the same period. The consistency of findings from the US is contrasted by more varying results from studies of the development of market concentration in Europe. In this study, we utilise the completeness of Norwegian microdata to investigate how methodological choices and data limitations impact results with respect to the market concentration and its relationship with profitability. First, we find that concentration in Norway has decreased slightly over the last two decades. Over the same period, profitability has increased slightly for two profitability measures and been stable for the other two. Despite a difference in overall trends, at the industry level, we find a positive and statistically significant relationship between concentration and profitability for three out of four profitability measures, in line with the market power hypothesis. Investigating the effect of methodological choices and data limitations, we find that concentration trends are quite robust to exclusion of smaller companies, the incorporation of ownership structures in concentration measures and the choice of industry classification. However, the positive relationship between concentration and profitability is almost non-existent when using readily available industry classification instead of more product market-oriented industry classifications and disappears completely when we do not exclude export-oriented industries. Our study is relevant for future research, as well as for policymakers, as our results indicate that one should be careful when interpreting results from studies of market concentration that fail to handle these methodological challenges.

This paper investigates the links of digitalization and industry concentration with labor productivity at the sectoral level in Germany. Combining data for digitalization and labor productivity from the EU KLEMS database with firm-level data from the CompNet and Orbis Bureau Van Dijk databases to construct industry concentration measures between 2000 and 2015, we show that (1) the German economy appears to have digitized since 2000, and (2) there is no clear-cut relationship between digitalization and market concentration at the industry level. Using a time and sector fixed effects model and controlling for capital intensity, however, we find evidence for (3) a positive effect of both lagged industry concentration and lagged digitalization on productivity at the sectoral level in Germany. This finding is robust to alternative measures of digitalization and industry concentration as well as to their interaction but sensitive to the sector sample and to scale effects from the capital intensity. We, therefore, cautiously conclude that recent technological change appears to have been labor-saving and that productivity-enhancing aspect of a partial “superstar firm” effect may be identified in the German economy, in particular in its manufacturing sector.

Recent empirical studies suggest that there is a rising trend of market power across sectors in advanced economies. We contribute to this line of research by providing industry-specific evidence for German manufacturing industries, based on representative high-quality firm-level data from official statistics that cover firms from all size classes with more than 20 employees (2005–2013). We compare firm-specific markups and industry concentration as market power indicators that reflect a market structure and a performance perspective, respectively. Our results do not suggest an overall average increase in market power in German manufacturing, but increasing markups and an increasing concentration in many industries. We demonstrate the complementarity of the indicators, as predicted by industrial organization theory. We also evaluate the competitive impact of digitization and find no clear evidence that digital transformation and market power go hand in hand.

A central motivating factor for studying price markups is their effect on consumer welfare. However, reported estimates of (firm-level) price markups in the literature often focus on industry or cross-country comparisons. These treat different industries equally rather than based on how relevant they are for consumers. We propose markup measures in which firm-level price markups are weighted according to consumption expenditures in the respective industries. Using a concordance table between consumption categories (otherwise used for the calculation of consumer price indices) and a firm’s industry classification, we report results for Germany for the years 2002 through 2016. We find that consumption-weighted price markups are higher and have increased faster than the conventionally reported revenue-weighted markups. We further show that consumption-weighted markups are highest for low-income households, highlighting the potential role of price markups as a contributing factor to changes in inequality in society.

From the early 2000s onwards, the rise in net lending of the nonfinancial corporate sector has contributed substantially to the increase in the German current account surplus. The main driving factor behind the development in the nonfinancial corporate sector’s net lending was a rise in savings (retained earnings) while business investment was comparatively stable. To shed light on the determinants of corporate savings, this study presents results from an analysis using firm-level data from the recently developed Bundesbank database Janis. The descriptive analysis suggests that the increase in corporate savings was a widespread development across the corporate sector in Germany. In line with aggregate results, also the median firm saw an increase in profitability while dividends were subdued. Empirical results show that firms with initially higher leverage ratios increased their saving ratios more after the year 2001, providing arguments for a role of a desire to deleverage in explaining increased corporate savings. No (unanimous) evidence is found that increases in uncertainty and market power of firms affect corporate savings positively.