Timeline for Why do different product-markets record different rates of return if the assumption of competitive markets hold?
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| Jun 18, 2020 at 8:53 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jun 18, 2020 at 4:32 | comment | added | new_but_trying_to_learn | Specifically: 1. Can a perfectly competitive market (or a market with an equivalent outcome, which is to say a market where P = MC and economic profits = 0) lead to the return variances we see empirically, and if so how? 2. If yes, is the reason for the varying return simply the degree of risk that differs? 3. If not risk, does market power explain the return structures? 4. Something else? | |
| Jun 18, 2020 at 4:25 | comment | added | new_but_trying_to_learn | I'm only using the sell-side note as an illustration of the principle that returns on invested capital can at least on the surface, seem to vary vastly both between and within a given product market. There are many other references from the I/O and strategy literature which I can cite if they are helpful. My fundamental question is about the implications of the economic efficiency characteristic of competitive markets on return structures and the welfare implications of extremely high returns as seen in some markets. | |
| Jun 18, 2020 at 3:58 | comment | added | Michael | Difficult to address a question about some random sell-side research note (in this case from Credit Suisse about return on equity investment, apparently). Interesting to see that, in this case some of the international macro perspective pointed out here actually seems applicable. | |
| Jun 17, 2020 at 23:06 | comment | added | new_but_trying_to_learn | Yes, I apologize for the misspecification on my part and have edited the question to reflect the intent of my question more fully :) Thanks for taking the time to answer/respond and I definitely think that I will dive into the literature you cited! | |
| Jun 17, 2020 at 22:58 | comment | added | 1muflon1♦ | @new_but_trying_to_learn well in you question you talk about "every product market on earth". If you really mean that then the above would apply of course if you mean all product markets within single countries then my answer would be less applicable. | |
| Jun 17, 2020 at 22:54 | comment | added | new_but_trying_to_learn | Thanks for the response. It will likely take me some time to digest and read through your papers linked. However, I did want to qualify (and have done so in edits) that I am mainly referring to the sources of varying return between different product markets within a single geography (eg, the market for microprocessors vs. the market for concrete). Some answers still apply I think, but curious if you have other thoughts. | |
| Jun 17, 2020 at 21:37 | history | edited | 1muflon1♦ | CC BY-SA 4.0 |
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| Jun 17, 2020 at 21:32 | history | answered | 1muflon1♦ | CC BY-SA 4.0 |