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Determinants of Price Markups at Japanese Firms and Implications for Productivity

日本語

December 13, 2024
Kosuke Aoki*1
Yoshihiko Hogen*2
Yojiro Ito*3
Kenji Kanai*4
Kosuke Takatomi*5

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.

JEL classification
E24, E31, J30, J42, L12

Keywords
price markup; wage markdown; competition; productivity; resource allocation

The authors would like to thank Ichiro Fukunaga, Daisuke Ikeda, Sohei Kaihatsu, Mitsuru Katagiri, Yuji Maruo, Takashi Nagahata, Koji Nakamura, Yoichi Ueno, Naoki Wakamori, and Bank of Japan staff for their helpful comments and discussions. The Ministry of Economy, Trade and Industry (METI) provided data of the Basic Survey of Japanese Business Structure and Activities. Any remaining errors are attributable to the authors. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank.

  1. *1Department of Economics, University of Tokyo
    E-mail : kaoki@e.u-tokyo.ac.jp
  2. *2Research and Statistics Department, Bank of Japan
    E-mail : yoshihiko.hougen@boj.or.jp
  3. *3Research and Statistics Department (currently Institute for Monetary and Economic Studies), Bank of Japan
    E-mail : youjirou.itou@boj.or.jp
  4. *4Research and Statistics Department, Bank of Japan
    E-mail : kenji.kanai@boj.or.jp
  5. *5Research and Statistics Department (currently Monetary Affairs Department), Bank of Japan
    E-mail : kousuke.takatomi@boj.or.jp

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