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How Costly Are Markups?

Chris Edmond, Virgiliu Midrigan and Daniel Yi Xu

Journal of Political Economy, 2023, vol. 131, issue 7, 1619 - 1675

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.

Date: 2023
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Citations: View citations in EconPapers (7)

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Working Paper: How Costly Are Markups? (2018) Downloads
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