Yusuf Ozkara

This paper shows that intangible capital fundamentally reshapes firm-level scale economies and the measurement of market power. I develop a structural nonparametric production framework that incorporates intangible capital as a factor input and external R&D as a source of productivity spillovers, and estimate it using U.S. public firm data from 1975 to 2024. I find that returns to scale increase sharply with firm size only when intangible capital is included; absent intangibles, returns to scale are approximately constant across firms. Markups rise with intangible intensity but follow an inverted-U shape in firm size, indicating that pricing power reflects asset composition rather than scale. Incorporating intangible capital lowers aggregate markup estimates by up to 20 percent, implying that traditional models overstate market power by attributing technological scale effects to price-cost margins. Large firms exhibit lower relative productivity within industries, suggesting they grow through scalability rather than efficiency. Consistent with this, exposure to external R&D spillovers declines with firm size as large firms internalize innovation through intangible accumulation.