Tuesday, January 18, 2022

What Creates Abnormal Profits: Collusion, Efficiency or Strategy?

What Creates Abnormal Profits: Collusion, Efficiency or Strategy?



Elizabeth Webster

Swinburne University of Technology; University of Melbourne - Melbourne Institute: Applied Economic & Social Research

William E. Griffiths

University of Melbourne - Department of Economics

Paul H. Jensen

University of Melbourne - Melbourne Institute of Applied Economic and Social Research



The debate regarding the determinants of persistent abnormal profits is re-examined using a new approach to the measurement of profits which explicitly accounts for intangible capital. Abnormal profits are estimated using data on tangible and intangible capital for 2800 Australian firms over a 18-year period. The determinants of abnormal profits are then estimated using variables collated from separate accounting and administrative company records data as well as an in-house survey of innovation and management practices. Our results imply that firm-specific factors relating to efficiency and strategy are much larger than the industry-specific effects of collusion


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