Intangible Capital, Markups and Pro fits

Maria Sandström ()
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Maria Sandström: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

No 2020:4, Working Paper Series from Uppsala University, Department of Economics

Abstract: Can an increasing importance of intangible capital in the economy explain increases in markups and profits? I use a heterogeneous firm model to show how intangible capital is related to markups and profits at the industry level. The uncertainty and scalability properties of intangible capital imply that firms that succeed in their intangible capital investment can charge high markups relative to other firms, whereas firms that fail will exit. However, the high markups do not lead to any economic profits in the industry as a whole if they only serve to cover the total fixed costs of intangible capital. To empirically examine the relationship between intangible capital, markups and profits, I study average markups and profit shares in a panel of Swedish industries. There is evidence of a positive relationship between intangible capital and average industry markups. However, the evidence of the relationship between intangible capital and profits is less conclusive.

Keywords: Intangible capital; Markups; Profits; Labor share; Market Power (search for similar items in EconPapers)
JEL-codes: D24 E22 L11 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2020-08-14
New Economics Papers: this item is included in nep-bec, nep-com, nep-hme and nep-mac
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