Excellent points about the changing nature of mark-ups

Do read the whole post (who wrote it?), but here are a few choice excerpts:

My take is that large US firms with dominant brands/market positions have always commanded monopolistic rents. What has changed is that the rents, which used to be more broadly shared by stakeholders, are now predominantly flowing to shareholders and top management. The change has been driven by the interplay of several developments–shareholder revolution, globalization, rising equity valuations, diminished growth expectations.


…the categories of variable and fixed costs are not iron-clad. Obviously, over long enough time frames, all costs are variable. Leaving that aside, even production-line workers have firm-specific capital. So, the costs related to training them or firing them are not entirely variable. More important, the question is how businesses view employee costs. There is circumstantial evidence that businesses have gone from treating most employees as relatively fixed costs to relatively variable costs. Note that since 1980, the proportion of job losers as a share of those unemployed has risen, suggesting that firms increasingly view employees as a variable cost.


Interestingly, note that depreciation as a share has really flattened since 2001–the period in which the NIPA data show the biggest rise in mark-up!


Moreover, industry concentration is only back to the levels of early 1980s.


Globalization probably has played some role in the increase in mark-up. First, the shift of low-end manufacturing means that what is left is high-end manufacturing with greater monopolistic power. So, mark-ups should increase simply from that shift. Unsurprisingly, the NIPA mark-up show that the rise in mark-up coincided with China’s entry into WTO and is also consistent with Autor’s findings about impact of Chinese competition. Second, if firms already have some pricing power, reducing costs through outsourcing should result in higher mark-ups.

You can see that there is much more to be contributed to this debate.


Comments for this post are closed