1/OK, another quick thread about the antitrust/market power issue.
IO people, who are used to looking at individual markets, have criticized the macro/labor/public people who are focusing on aggregates.
ftc.gov/system/files/d…
IO people, who are used to looking at individual markets, have criticized the macro/labor/public people who are focusing on aggregates.
ftc.gov/system/files/d…
2/But I think looking at aggregates is important, because aggregates can provide information that isn't contained in any individual market.
3/For example, suppose you find that market concentration is correlated with high markups at the industry level.
IO people - and antitrust skeptics too - are quick to point out that high markups could be due to high prices OR low costs.
IO people - and antitrust skeptics too - are quick to point out that high markups could be due to high prices OR low costs.
4/Suppose high markups are due to low cost. That could be due to:
A) paying lower wages
B) squeezing suppliers
C) having a more efficient production technology
Obviously, if it's (C), that's good. We WANT technology to enable companies to make things cheaply!
A) paying lower wages
B) squeezing suppliers
C) having a more efficient production technology
Obviously, if it's (C), that's good. We WANT technology to enable companies to make things cheaply!
5/BUT, here's where aggregates come in.
Suppose markups are increasing all across the economy (as they probably are: janeeckhout.com/wp-content/upl…
If this is mostly due to improved production technology, we'd expect to see ECONOMY-WIDE productivity growing more quickly!
Suppose markups are increasing all across the economy (as they probably are: janeeckhout.com/wp-content/upl…
If this is mostly due to improved production technology, we'd expect to see ECONOMY-WIDE productivity growing more quickly!
6/But we DON'T. We see economy-wide productivity slowing down substantially since the mid-00s.
Productivity is hard to measure, but all the measurements seem to point in the same direction: slowdown.
voxeu.org/article/produc…
Productivity is hard to measure, but all the measurements seem to point in the same direction: slowdown.
voxeu.org/article/produc…
7/If markups are increasing because of better production technologies, there's still a possibility that the economy would see low productivity growth, if the economy were shifting toward industries with lower productivity levels (composition effects).
8/BUT, people who look at industry-level productivity numbers typically see the slowdown across a variety of industries. Including manufacturing, which traditionally has the fastest productivity growth.
bls.gov/opub/mlr/2018/…
bls.gov/opub/mlr/2018/…
9/So it seems to me that aggregates are adding useful data to the story here. They sort of cast doubt on the idea that industries are becoming more concentrated and seeing higher markups because a few highly productive "superstar" companies are taking over.
10/Now, it's still possible that "superstar" companies are taking over not because of lower production costs, but because of higher product quality, and that high markups are due to higher-quality products commanding higher prices!
That would also be good.
That would also be good.
11/BUT, given lower aggregate productivity growth (and lower sector-level productivity growth), that would mean that we'd have to be overstating inflation increasingly severely over time - ignoring product quality improvements more and more.
12/Anyway, what I'm saying is, the "aggregates are meaningless" argument doesn't hold up. Aggregates can help distinguish between a story of increasing productivity and a story of increasing market power. That's information that shouldn't be thrown in the garbage can.
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