Unravelling the markups changes: the role of demand elasticity and concentration

Michał Gradzewicz and Jakub Mućk

No 334, NBP Working Papers from Narodowy Bank Polski

Abstract: We propose a framework allowing to identify sources changes in aggregate markups. Our approach derives from the conjectural variation theory and allows to evaluate the role of price elasticity of demand as well as concentration in shaping the markups. In the empirical part, we show that a decline in the aggregate markups in Poland, showed by Gradzewicz and Muck (2019), can be explained to a large extent by rising demand elasticity, while rising concentration has mitigated this effect. We also document that at the industry level the globalization trends, e.g. international fragmentation, increasing standardization and tighter integration with global economy, affect both demand elasticity and markups but in a theory-consistent, inverse way. Besides, we identify factors which are specific to demand elasticity (product varieties and 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: 30
Date: 2020
New Economics Papers: this item is included in nep-com and nep-int
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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:nbp:nbpmis:334

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