Bernd Görzig, Martin Gornig
While the model of perfect competition proves to be a very practical benchmark for assessing existing economies, most economists agree that this ideal state is practically never reached. Observed dispersions in return rates on capital seem to prove that the existence of monopolistic profits is more the rule as an outlier. However, recent research on intangible capital has shown that at least part of the dispersion of return rates is caused by the insufficient coverage of capital input. In conventional accountancy frameworks - commercial as well as national - investment is defined by certain types of classified goods. Given the economic definition of investment as expenditures with expected future returns, this practice covers only parts of total investment and capital input in production. In this paper, it is argued that the observed return rates on capital at firm level have an upward bias if firms are producing with unobserved - mostly - intangible capital. Using a comprehensive firm level database for Germany (Eukleed), this theoretical preposition is confirmed empirically. Making unobserved intangible capital observable, the dispersion in return rates reduces dramatically. The results clearly support the assumption that a considerable part of the observed dispersion in return rates among firms can be contributed to unobserved capital formation in intangible capital and cannot be attributed to imperfect competition.
JEL-Classification: L23;E01;D24
Keywords: Firm-level profitability, Intangible capital, National Accounting
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