Determinants of Price Markups at Japanese Firms and Implications for Productivity

Kosuke Aoki, Yoshihiko Hogen, Yojiro Ito, Kenji Kanai and Kosuke Takatomi
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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

No 24-E-15, Bank of Japan Working Paper Series from 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.

Keywords: Price markup; Wage markdown; Competition; Productivity; Resource allocation (search for similar items in EconPapers)
JEL-codes: E24 E31 J30 J42 L12 (search for similar items in EconPapers)
Date: 2024-12-13
New Economics Papers: this item is included in nep-com, nep-eff and nep-lma
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