Markups and Concentration in the Context of Digitization: Evidence from German Manufacturing Industries

Abstract Recent empirical studies suggest that there is a rising trend of market power across sectors in advanced economies. We contribute to this line of research by providing industry-specific evidence for German manufacturing industries, based on representative high-quality firm-level data from official statistics that cover firms from all size classes with more than 20 employees (2005–2013). We compare firm-specific markups and industry concentration as market power indicators that reflect a market structure and a performance perspective, respectively. Our results do not suggest an overall average increase in market power in German manufacturing, but increasing markups and an increasing concentration in many industries. We demonstrate the complementarity of the indicators, as predicted by industrial organization theory. We also evaluate the competitive impact of digitization and find no clear evidence that digital transformation and market power go hand in hand.