Markups: A Search-Theoretic Perspective

Guido Menzio

Journal of Political Economy, 2026, vol. 134, issue 9, 2871 - 2925

Abstract: I characterize markups in the search-theoretic model of imperfect competition of Burdett and Judd. A formula for the equilibrium distribution of markups is derived, showing how fundamentals affect the level of markups and their relationship to sellers’ size. Anything goes theorems are derived, showing that any relationship between sellers’ size and markups can be obtained in equilibrium. When competition is exogenous, equilibrium is efficient despite positive and heterogeneous markups. When competition is endogenous, necessary and sufficient conditions for efficiency are derived. Interpreting equilibrium markups through the lens of the Dixit-Stiglitz model of monopolistic competition leads to incorrect conclusions about counterfactuals and welfare.

Date: 2026
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