W HY RETAIL ? HHI OF SALES , C OMPUSTAT US FIRMS .18 .16 .14 .12 - - PowerPoint PPT Presentation

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W HY RETAIL ? HHI OF SALES , C OMPUSTAT US FIRMS .18 .16 .14 .12 - - PowerPoint PPT Presentation

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I NTANGIBLES , INVESTMENT , AND EFFICIENCY Nicolas Crouzet 1 Janice Eberly 2 1 Kellogg School of Management, Northwestern University 2 Kellogg School of Management, Northwestern University & NBER TPRI competition conference July 2018 O VERVIEW

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SLIDE 1

INTANGIBLES, INVESTMENT, AND EFFICIENCY

Nicolas Crouzet1 Janice Eberly2

1Kellogg School of Management, Northwestern University 2Kellogg School of Management, Northwestern University & NBER

TPRI competition conference July 2018

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SLIDE 2

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

1 / 11

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SLIDE 3

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

1 / 11

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SLIDE 4

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

1 / 11

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SLIDE 5

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

  • Productivity gains among industry leaders, associated with shift in

investment toward non-physical (intangible) capital

1 / 11

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SLIDE 6

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

  • Productivity gains among industry leaders, associated with shift in

investment toward non-physical (intangible) capital

  • Illustration in the retail sector:

1 / 11

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SLIDE 7

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

  • Productivity gains among industry leaders, associated with shift in

investment toward non-physical (intangible) capital

  • Illustration in the retail sector:
  • 1. stable markups

1 / 11

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SLIDE 8

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

  • Productivity gains among industry leaders, associated with shift in

investment toward non-physical (intangible) capital

  • Illustration in the retail sector:
  • 1. stable markups
  • 2. growth in productivity, particularly among largest firms

Foster, Haltiwanger & Krizan (2006)

1 / 11

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SLIDE 9

OVERVIEW

Two salient macro trends, since mid-1990’s

  • Increasing business concentration

Guti´ errez and Philippon (2018) (”market power”); Autor et al. (2017) (”productivity gap”)

  • Low (physical) investment, relative to Q

Guti´ errez and Philippon (2017), Alexander and Eberly (2017), Fernald et al. (2017)

This paper: explore a joint explanation for these two trends

  • Productivity gains among industry leaders, associated with shift in

investment toward non-physical (intangible) capital

  • Illustration in the retail sector:
  • 1. stable markups
  • 2. growth in productivity, particularly among largest firms

Foster, Haltiwanger & Krizan (2006)

  • 3. closely correlated growth in intangible capital

1 / 11

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SLIDE 10

WHY RETAIL?

HHI OF SALES, COMPUSTAT US FIRMS .12 .14 .16 .18 1990 1995 2000 2005 2010 2015 All Excluding retail Excluding retail and oil & gas

Sales HHI in retail: .14 in 1990; .36 in 2015.

Oil & gas 2 / 11

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SLIDE 11

THE INVESTMENT GAP IN RETAIL

  • .15
  • .1
  • .05

1990 1995 2000 2005 2010 2015 year point estimate +/- 2 s.e.

(I/K)i,t = αi + δt + X′

i,tβ + ǫi,t

Xi,t ≡ ( Qi,t−1, (CF/K)i,t−1 )′

3 / 11

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SLIDE 12

PROXIMATE CAUSES

4 / 11

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SLIDE 13

PROXIMATE CAUSES

  • Increasing market power of incumbents?

4 / 11

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SLIDE 14

PROXIMATE CAUSES

.1 .15 .2 .25 .3 .35 1.3 1.35 1.4 1.45 1.5 1990 1995 2000 2005 2010 2015

Markup (LHS) HHI (RHS) Markup ≡ Sales Cost of goods sold

4 / 11

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SLIDE 15

PROXIMATE CAUSES

  • Increasing market power of incumbents?
  • Productivity gains, especially among industry leaders?

4 / 11

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SLIDE 16

PROXIMATE CAUSES

  • Increasing market power of incumbents?
  • Productivity gains, especially among industry leaders?

= ⇒ rising concentration

4 / 11

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SLIDE 17

PROXIMATE CAUSES

.1 .15 .2 .25 .3 .35 120 140 160 180 200 1990 1995 2000 2005 2010 2015

Revenue per employee (1990 $ '000)

.1 .15 .2 .25 .3 .35 100 110 120 130 140 150 1990 1995 2000 2005 2010 2015

Multi-factor productivity (base 1990 = 100) HHI (RHS)

  • Revenue per employee is a firm-level average, weighted by sales
  • Multi-factor productivity is an (aggregate) output-based measure, from KLEMS

4 / 11

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SLIDE 18

WHAT HAPPENED IN RETAIL?

.1 .15 .2 .25 .3 .35 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1990 1995 2000 2005 2010 2015

Inventory coverage (months, LHS) HHI (RHS)

  • 1990’s & early 2000’s: faster payment systems, more accurate pricing, better

inventory management (Walmart)

Foster, Haltiwanger and Krizan (2006)

5 / 11

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SLIDE 19

WHAT HAPPENED IN RETAIL?

.1 .15 .2 .25 .3 .35 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1990 1995 2000 2005 2010 2015

Inventory coverage (months, LHS) HHI (RHS)

  • 1990’s & early 2000’s: faster payment systems, more accurate pricing, better

inventory management (Walmart)

Foster, Haltiwanger and Krizan (2006)

  • late 2000’s & early 2010’s: development of online retail platforms and distributed

retail systems (Amazon)

5 / 11

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SLIDE 20

WHAT HAPPENED IN RETAIL?

.1 .15 .2 .25 .3 .35 1.3 1.4 1.5 1.6 1.7 1.8 1.9 1990 1995 2000 2005 2010 2015

Inventory coverage (months, LHS) HHI (RHS)

  • 1990’s & early 2000’s: faster payment systems, more accurate pricing, better

inventory management (Walmart)

Foster, Haltiwanger and Krizan (2006)

  • late 2000’s & early 2010’s: development of online retail platforms and distributed

retail systems (Amazon)

  • requires intangible “know-how”, not only investment in new physical capital

5 / 11

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SLIDE 21

PRODUCTIVITY VS. MARKET POWER Jeff Bezos (09/28/2011)

6 / 11

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SLIDE 22

INTANGIBLES AND PRODUCTIVITY

SECTOR-WIDE 5 10 15 20 120 140 160 180 200 1990 1995 2000 2005 2010 2015

Revenue per employee (1990 $ '000, LHS) Intangible share of total assets (%, RHS)

Acquisition flows 7 / 11

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SLIDE 23

INTANGIBLES AND PRODUCTIVITY

AT THE 3-DIGIT NAICS SUBSECTOR LEVEL

  • 8
  • 6
  • 4
  • 2

Log of intangible/total assets 4.5 5 5.5 6 Log of revenue/employee

Simple correlation : 0.49 OLS slope, with industry-clustered s.e.: 1.222 (0.346)

Investment gap with intangibles 8 / 11

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SLIDE 24

INTANGIBLES AND PRODUCTIVITY

AT THE 3-DIGIT NAICS SUBSECTOR LEVEL — INCLUDING CAPITALIZED R&D

  • 8
  • 6
  • 4
  • 2

Log of intangible/total assets 4.5 5 5.5 6 Log of revenue/employee

Simple correlation : 0.57 OLS slope, with industry-clustered s.e.: 1.432 (0.320)

Investment gap with intangibles 9 / 11

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SLIDE 25

INTANGIBLES AND PRODUCTIVITY

AT THE 3-DIGIT NAICS SUBSECTOR LEVEL — INCLUDING CAPITALIZED R&D AND CAPITALIZED SG&A

  • 2
  • 1

Log of intangible/total assets 4.5 5 5.5 6 Log of revenue/employee

Simple correlation : 0.37 OLS slope, with industry-clustered s.e.: 0.211 (0.088)

Investment gap with intangibles 10 / 11

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SLIDE 26

CONCLUSION

In the US retail sector

  • Higher concentration
  • Large productivity gains, esp. among industry leaders
  • Despite this fact, physical investment remains low
  • But higher productivity strongly correlated with intangible investment

11 / 11

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SLIDE 27

CONCLUSION

In the US retail sector

  • Higher concentration
  • Large productivity gains, esp. among industry leaders
  • Despite this fact, physical investment remains low
  • But higher productivity strongly correlated with intangible investment

Unanswered questions

  • How widespread is this phenomenon, beyond retail?
  • Does intangible investment only lead to productivity gains, or could it

serve to increase market power?

brand value

11 / 11

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SLIDE 28

PLAN

MORE

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SLIDE 29

Alexander, L. and J. Eberly (2017). Investment hollowing out. IMF Economic Review forthcoming. Autor, D., D. Dorn, L. F. Katz, C. Patterson, and J. V. Reenen (2017). Concentrating on the fall of the labor share. American Economic Review 107(5), 180–185. Fernald, J. G., R. E. Hall, J. H. Stock, and M. W. Watson (2017). The disappointing recovery of output after 2009. Brookings Papers on Economic Activity. Guti´ errez, G. and T. Philippon (2017). Investment-less growth: An empirical

  • investigation. Brookings Papers on Economic Activity forthcoming.

Guti´ errez, G. and T. Philippon (2018). Declining competition and investment in the us. Technical report, NBER working paper.

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SLIDE 30

CONCENTRATION IN THE OIL & GAS SECTOR

HHI OF SALES, COMPUSTAT US FIRMS .12 .14 .16 .18 1990 1995 2000 2005 2010 2015 All

  • Excl. oil and gas
  • Excl. retail and oil & gas

Concentration in retail

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SLIDE 31

ACQUISITION ACTIVITY AND INTANGIBLE CAPITAL

ACTUAL INTANGIBLE VS. IMPLIED BY ACQUISITION FLOWS

5 10 15 20 1990 1995 2000 2005 2010 2015

Intangible share - actual (%) Intangible share - implied by acquisition flow and stable valuations (%)

Counterfactual (dotted line) =

  • 1 −

1 Q1989,1994

  • × acq. expenditures, cumulated

Intangibles and efficiency

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SLIDE 32

INTANGIBLES AND THE INVESTMENT GAP

TIME EFFECTS IN INVESTMENT/Q REGRESSION, INCLUDE INTANGIBLE INVESTMENT

  • .15
  • .1
  • .05

1990 1995 2000 2005 2010 2015 year Physical investment Physical plus intangible investment, with +/- 2 s.e. band

Intangible investment = net change in balance sheet intangibles + R&D + advertising

Intangibles and productivity