Productivity, Prices, and Concentration in Manufacturing: A Demsetzian Perspective

Start Page



Concentration and price-cost margins have increased since the 1980s in many industries. These developments have raised concern about weakened competition and resulting harm to consumers and the need for tougher antitrust enforcement. In 1973 Harold Demsetz cautioned against inferring weakened competition from high or rising margins and concentration. He argued that this correlation between margins and concentration could arise from productivity differences across competitive firms. This paper studies the interplay between concentration, prices, and productivity across US manufacturing industries over two 15-year periods from 1982 to 2012. The consistent pattern is that high and rising concentration has been associated with better productivity growth. I show that widening margins, whether related to concentration or not, are mainly driven by productivity gains rather than prices, as in the competitive process outlined by Demsetz. Skepticism about tougher antitrust policy may be warranted: this would risk harm to productivity without benefiting consumers.

Full text not available in ChicagoUnbound.