Journal of Political Economy Vol. 131 No. 7 2023
How Costly Are Markups?
Abstract
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.
- DOI
- 10.1086/722986
- Volume
- 131
- Issue
- 7
- Pages
- 1619-1675
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref