Unravelling the Markups Changes: The Role of Demand Elasticity and Concentration

Michał Gradzewicz and Jakub Mućk

No 2020-056, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: We propose a framework allowing to identify sources changes in aggregatemarkups. Our approach derives from the conjectural variation theory and allowsto evaluate the role of price elasticity of demand as well as concentrationin shaping the markups. In the empirical part, we show that a decline inthe aggregate markups in Poland, showed by Gradzewicz and Mućk (2019),can be explained to a large extent by rising demand elasticity, while risingconcentration has mitigated this effect. We also document that at the industrylevel the globalization trends, e.g. international fragmentation, increasingstandardization and tighter integration with global economy, affect both demandelasticity and markups but in a theory-consistent, inverse way. Besides,we identify factors which are specific to demand elasticity (product varietiesand a home bias) and the markups (import content of exports).

Keywords: markups; price elasticity of demand; globalization (search for similar items in EconPapers)
JEL-codes: C23 D22 D4 F61 L11 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020-11
New Economics Papers: this item is included in nep-int
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https://hdl.handle.net/20.500.12182/1110 (application/pdf)

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Working Paper: Unravelling the markups changes: the role of demand elasticity and concentration (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2020056

DOI: 10.33119/kaewps2020056

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