Measurement of the Market Power of Firms: The Japanese Case in the 1990s

Posted by D. Daniel Sokol

Kozo Kiyota, Yokohama National University - Faculty of Business Administration, Takanobu Nakajima, Keio University - Faculty of Business and Commerce, and Kiyohiko G. Nishimura address Measurement of the Market Power of Firms: The Japanese Case in the 1990s.

ABSTRACT: This article presents a new simple econometric framework for the estimation of individual firms’ markup over their marginal cost, taking account of firm heterogeneity, demand-driven cyclical price changes, and the limited availability of firm-level information. The framework is applied to study markup of Japanese firms in manufacturing and wholesale/retail trade for 1994-2002. The results indicate that, on average, the Japanese markets become more competitive in the 1990s than before even in non-manufacturing industries. We also find sizable heterogeneity and non-negligible pro-cyclicality in the markup of the Japanese firms.