Company heterogeneity and mark-up variability

Saara Tamminen and Han-Hsin Chang

No 32, Working Papers from VATT Institute for Economic Research

Abstract: Mark-ups are often assumed to be constant for all firms within a sector in theoretical models. This paper reflects empirically on the distributions of companies mark-ups in order to test this assumption. We use exhaustive, Finnish company level micro-data to calculate the mark-up for each firm. The dataset covers 70 sectors from both the manufacturing and services sectors for the years 2005 to 2009. The wide variation of mark-ups found in some sectors suggests that assuming a constant mark-up estimate for all firms in the same sector is inappropriate. Our results indicate 16 out of 28 manufacturing and 31 out of 42 services sectors to support the heterogeneous mark-up assumption. We compare explicitly the mark-up distributions between companies of different size and exporting status. We find that small companies place on average higher mark-ups than large companies and domestic companies place higher mark-ups than exporting companies. Last, we characterize the sectors in which the assumption of homogenous mark-ups is to some extent justified. The results suggest that mark-up heterogeneity is greater in sectors with a low capital-labour ratio and high number of companies. Overall, mark-up heterogeneity is not prevalent only in few specific types of sectors, but seems like a wider phenomenon.

Keywords: Mark-up, company heterogeneity, nonparametric methods, Macroeconomic policy, Talouspolitiikka, International comparisons, Kansainväliset vertailut, Policy analysis and modelling, Päätöksenteon tuki ja mallintaminen, C140 - Semiparametric and Nonparametric Methods, F230 - Multinational Firms; International Business (International Competitiveness), L110 - Production, Pricing, and Market Structure; Size Distribution of Firms (Concentration, Product Differentiation, Entry and Exit), (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-bec and nep-hme
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Citations: View citations in EconPapers (2)

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