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Japanese Firms' Markups and Firm-to-firm Transactions

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  • NAKAMURA Tsuyoshi
  • OHASHI Hiroshi

Abstract

Markup, or the ratio of price to cost, depends on the firm's attributes and the market environment where the firm operates. This paper empirically studies the relationship between the markups of firms and their firm-to-firm transactional status. More specifically, we analyze the correlation between markups and the number and variety of the firm’s transactional partners. Based on a comprehensive panel dataset of Japanese firms derived from the Basic Survey of Japanese Business Structure and Activities, provided by METI, and the Firm Relation File of TSR (Tokyo Shoko Research) for 2007-2018, we find that a firm's markup level decreases as the number of suppliers (upstream transactional partners) increases, after controlling for firm attributes such as size and age, and industry-specific time effects. This empirical pattern is observed for both manufacturing and non-manufacturing sectors. As for the firm’s number of customers (downstream transactional partners), the empirical results differ between manufacturing and non-manufacturing sectors. We further examine the correlation between the number of transactional partners a firm has and the characteristics of those transactional partners.

Suggested Citation

  • NAKAMURA Tsuyoshi & OHASHI Hiroshi, 2022. "Japanese Firms' Markups and Firm-to-firm Transactions," Discussion papers 22083, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:22083
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    References listed on IDEAS

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