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Determinants of Price Markups at Japanese Firms and Implications for Productivity

Author

Listed:
  • Kosuke Aoki

    (University of Tokyo)

  • Yoshihiko Hogen

    (Bank of Japan)

  • Yojiro Ito

    (Bank of Japan)

  • Kenji Kanai

    (Bank of Japan)

  • Kosuke Takatomi

    (Bank of Japan)

Abstract

In this paper, we analyze determinants of price markups and their relationship with aggregate productivity based on long-term estimates of price markups and wage markdowns for Japanese firms. The main results are summarized as follows. First, we find that, in order to maintain profitability, Japanese firms have raised their wage markdowns while their price markups have declined since the late 1990s. Both the U.S. and Japanese firms experienced rising wage markdowns, but Japanese firms differ in that they experienced declining price markups. Second, regarding determinants of price markups for Japanese firms, we find that firms' investment in intangible assets has significantly contributed to raising price markups across industries. Meanwhile, in manufacturing, a decline in Japan's share of global exports due to changes in the international competitive environment has worked as a force for exerting downward pressure on price markups. In non-manufacturing, the number of stores per capita increased which worked as a force for enhancing the severity of price competition and exerted downward pressure on price markups. Third, we find that TFP growth in Japan was mainly driven by (1) the efficiency improvements from declining price markups, and (2) contributions from technological progress was much smaller than those of the United States. We also show that Japan's technological frontier, as measured by actual output and price markups, did not expand as much as in the United States.

Suggested Citation

  • Kosuke Aoki & Yoshihiko Hogen & Yojiro Ito & Kenji Kanai & Kosuke Takatomi, 2024. "Determinants of Price Markups at Japanese Firms and Implications for Productivity," Bank of Japan Working Paper Series 24-E-15, Bank of Japan.
  • Handle: RePEc:boj:bojwps:wp24e15
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    More about this item

    Keywords

    Price markup; Wage markdown; Competition; Productivity; Resource allocation;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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