Heterogeneity of markups at the firm level and changes during the great recession: the case of spain

Cristina Fernández (), Aitor Lacuesta (), José Manuel Montero () and Alberto Urtasun
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Cristina Fernández: Banco de España
José Manuel Montero: Banco de España

No 1536, Working Papers from Banco de España

Abstract: We broaden the conceptual framework of estimating markups at the sectoral level developed by Roeger (1995), and extended by Crépon et al. (2005) with labour market imperfections, to account for firm-level heterogeneity derived from differences in productivity. We estimate this model with a comprehensive panel of Spanish non-financial corporations for the period 2001-2007 to find that perfect competition is widely rejected in the data. More interestingly, within each sector, firms with higher productivity present higher markups. Further, we use this empirical setting to estimate changes in firm-level markups over the course of the crisis (2008/2012). Our results indicate that for around 50% of sectors average markups increased, following a decrease in the number of firms, while for around 35% of industries the relevance of within-sector markup heterogeneity decreased at the same time that the variance of within-sector TFP increased. This last result suggests that the simple changes in the number and composition of competing firms cannot explain within-sector markups and we require additional factors to account for recent developments. For instance, we provide evidence that both an increase in consumer product substitutability and in fixed entry costs during the crisis might be a good explanation.

Keywords: markups; production function; market power; heterogeneity (search for similar items in EconPapers)
JEL-codes: C23 C26 D24 E31 L11 L16 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2015-12
New Economics Papers: this item is included in nep-bec, nep-com, nep-cse, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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