Market Power, Economic Profitability and Productivity Growth Measurement: An Integrated Structural Approach

The purpose of this paper is to treat scale economies, profit-maximizing markups, economic profitability, capacity utilization and productivity growth within an integrated structural model, and to assess their interactions empirically using annual two-digit U.S. manufacturing data. Attention is focused on error biases in measuring productivity using traditional accounting procedures. An important conjecture by Robert Hall, that the coexistence of normal economic profits and positive markups of price over marginal cost imply the existence of substantial scale economies and excess capacity, is then examined using this structure. The empirical results suggest that markups in most U.S. manufacturing firms have increased over time, and tend to the countercyclical. However, procyclical capacity utilization and scale economies tend to offset the short run profit potential from markup behavior. As a result, on average economic profits are normal, but declining profitability is prevalent in most industries since the early 1970s. Also, although cost and revenue shares tend to be approximately equal, the error biases in standard productivity growth measures resulting from input fixity and scale economies are substantial, particularly over business cycles.

On the Economic Interpretation and Measurement of Optimal Capacity Utilization with Anticipatory Expectations

This study builds on recent research giving the notion of capacity utilization clearer economic foundations. In this research optimal output Y* is defined as the minimum point on the firm's short-run average total cost curve, and capacity utilization is then computed as CU=Y/Y*, where Y is actual output. Here I extend these concepts to include adjustment costs due to changes in the stock of capital, and nonstatic expectations of future output demand and input prices. The more general notion of CU is shown to depend on the shadow values of the firm's quasifixed inputs, and is decomposed to isolate the effects of anticipatory expectations. An empirical comparison is then made between traditional indices and alternative economic CU measures, using annual U.S. manufacturing data 1954-80. The calculated indices exhibit plausible patterns, which can be interpreted as the effects of nonstatic expectations and adjustment costs.

Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach

Typically measures of multifactor productivity growth have been based on a production and optimization framework that assumes all inputs are instantaneously adjustable, thus ignoring the important impacts of short run fixity of certain inputs. This paper focuses on the distinction between short and long run production behavior represented by economic capacity utilization indexes, and on the adjustment of observed productivity measures for the effects of short run fixity characterized by these indexes. A dynamic optimization model based on adjustment costs for quasi-fixed inputs is developed to calculate capacity utilization adjustments for productivity growth measures. The resulting framework is then used to identify empirically the effects of capacity utilization, nonstatic expectations,nonconstant returns to scale and adjustment costs for both capital and labor on productivity growth in the U.S. manufacturing sector, 1947-1979.

Economic performance, cost economies and pricing behaviour in the US and Australian meat products industries

The cost and demand structures of meat products industries in the US and Australia from 1970 to 1991 are examined. Scale economies, technical change and trade impacts and output pricing behaviour are evaluated, using short‐ and long‐run input cost and input and output demand elasticities. The greatest technological impacts stem from large‐scale economies, which are similar across countries. Unit cost savings from output expansion involve capital investment and materials saving in the long run, although input‐specific patterns vary by country. Import competition appears to motivate capital expansion further. Finally, large mark‐ups of price over marginal cost are found, which are consistent with low profits as a result of the underlying scale economies.Livestock Production/Industries,

Markup Behavior in Durable and Nondurable Manufacturing: A production Theory Approach

In this paper I provide a production theory-based framework for measuring markups of price over marginal coat, and the effects of cost and demand characteristics on these markups. Price to marginal coat ratios are measured for various Canadian manufacturing industries, and the impacts of capacity utilization, scale economies, changing prices of variable inputs, import competition, unemployment and other cost and demand determinants are evaluated using adjusted markup indexes and elasticities of the markup ratios. The measured price margins are within a reasonable range and tend to be countercyclical. Moreover, these measures suggest that profitability stemming from the potential to increase price over marginal cost appears primarily to arise from cost characteristics determining scale economies.

PRODUCTION STRUCTURE AND TRENDS IN THE U.S. MEAT AND POULTRY PRODUCTS INDUSTRIES

The U.S. meat products industries have experienced increasing consolidation. It has been speculated that this has resulted from cost economies, perhaps associated with technical change or trade factors. It has also been asserted that increased concentration in these industries may be allowing the exploitation of market power in the input (livestock) and output (meat product) industries. These issues are addressed for the four digit SIC meat and poultry industries. Findings show that the beef and pork products industries tend to have similar structures, which differ from the poultry industries. None of the industries, however appear to have exhibited excessive market power, particularly when scale economies (diseconomies), and resulting reductions (increases) in marginal cost from output expansion, are taken into account. Also, technical change and trade (especially export market) trend impacts seem overall to have contributed to cost efficiency.Production Economics,

Cost Economies and Market Power in U.S. Beef Packing

Industrial Organization, Livestock Production/Industries,

THOUGHTS ON PRODUCTIVITY, EFFICIENCY AND CAPACITY UTILIZATION MEASUREMENT FOR FISHERIES

Productivity Analysis, Resource /Energy Economics and Policy,

AUTOMATION OR OPENNESS?: TECHNOLOGY AND TRADE IMPACTS ON COSTS AND LABOR COMPOSITION IN THE FOOD SYSTEM

Productivity, technology, production costs, Productivity Analysis, Research and Development/Tech Change/Emerging Technologies,

TECHNOLOGIES AND LOCALIZED TECHNICAL CHANGE

Heterogenous Technologies, Transformation Function, Localized Technical Change, Production Economics, Research Methods/ Statistical Methods, Q12, O33, C35,