Industrial concentration, price-cost margins, and innovation

This paper explores a panel data set matching establishment-based production statistics from Japan's Census of Manufacturers with wholesale price indices from the Bank of Japan, and Herfindahl indices from the Japan Fair Trade Commission. The data include annual observations over the period 1961-1990, for 74 industries at the four-digit s.i.c. level. I estimate Cobb-Douglas production functions and Solow residuals for each industry and then use these estimates to further analyze the determinates of industrial concentration and innovation. The industries having great capital intensity and small employment of labor tend to be more concentrated. Cross-section estimates reveal a U-shaped mapping from concentration to innovation.

► Cobb-Douglas production functions for 74 Japanese manufacturing industries, based on panel data. ► The capital-intensive, small-scale industries tended to be more concentrated. ► No cross-industry relation between industry price-cost margin and rate of innovation. ► There appears to be a U-shaped mapping from concentration to innovation in these data.