How Costly Are Markups?
By Chris Edmond, Virgiliu Midrigan, Daniel Yi Xu. Journal of Political Economy, 2018
172 citations recorded by the source corpus.
We study the welfare costs of markups in a dynamic model with heterogeneous firms and endogenous markups. We provide aggregation results summarizing the macro implications of micro-level markup heterogeneity. We calibrate our model to US Census of Manufactures data and find that the costs of markups can be large. We decompose the costs into three channels: an aggregate markup that acts like a uniform output tax, misallocation of factors of production, and inefficient entry. We find that the aggregate-markup and misallocation channels account for most of the costs of markups and that the entry channel is much less important.
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/4785007eddd7357c2238169ae0ca21d33754ec7e
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Citations in the corpus
- Diverging Trends in National and Local Concentration (2018, unknown): “Figure 8 shows that when we exclude the top firm, the negative trend in ZIP-code-level concentration is less pronounced.”
- Market Power and Innovation in the Intangible Economy (2019, background): “In a model where large firms charge higher markups, Edmond et al. (2018) find that markups reduce welfare by 7.5%.”