The Effects of Local Demand and Supply Restrictions on Markup

Antonio Acconcia and Elisa Scarinzi ()
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Elisa Scarinzi: Bank of Italy

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We investigate the causal effects on markup of a contraction in demand and supply. For differentiated manufacturing products, transport and business services, markups shrink severely following a contraction in demand whereas they amplify after a contraction in supply. In either case the effect is short-lived. For local firms operating in retail, wholesale, restaurant, and accommodation, a supply contraction determines a boost in markups that lasts a few years; a demand contraction instead drives down the labor costs without affecting the markups. We also find heterogeneous effects among firms caused by the supply shock, as firms with the lowest markups already tend to increase more the markup while highest markup firms mainly gain in terms of market shares. Overall, after a deep shock like the Covid-19 one our findings suggest significant labor market adjustment in sectors with substitutable workers and enhanced output market concentration.

Keywords: Demand/Supply Contraction; Markup; Local Competition; Labor Market; Demand Reallocation. (search for similar items in EconPapers)
JEL-codes: D22 D40 E30 (search for similar items in EconPapers)
Date: 2022-01-07, Revised 2022-03-17
New Economics Papers: this item is included in nep-com, nep-eur, nep-ind and nep-mac
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Working Paper: The effects of local demand and supply restrictions on markup (2022)
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