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Markups and the Business Cycle: Evidence from Italian Manufacturing Branches

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  • Domenico Marchetti

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    Abstract

    This paper investigates the markup of price over marginal cost in Italian manufacturing branches. The approach used is an extension of Hall's model that addresses some measurement shortcomings and theoretical limitations that may affect this class of model. The hypothesis of perfect competition is rejected in the majority of sectors over the period 1977–1995. The cyclical behavior of markups is found to vary significantly across branches, thereby helping to explain the contradictory evidence regarding the whole manufacturing sector reported in the literature. At branch level, industry concentration is found to be associated with countercyclical markups, providing scope for real effects of aggregate demand shocks. Finally, the size of the markup is negatively affected by both domestic and foreign competitive pressure. Copyright Kluwer Academic Publishers 2002

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    File URL: http://hdl.handle.net/10.1023/A:1012268030232
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    Bibliographic Info

    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 13 (2002)
    Issue (Month): 1 (January)
    Pages: 87-103

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    Handle: RePEc:kap:openec:v:13:y:2002:i:1:p:87-103

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    Web page: http://www.springerlink.com/link.asp?id=100323

    Related research

    Keywords: markup; business cycle; imperfect competition; manufacturing;

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    5. Galeotti, Marzio & Schiantarelli, Fabio, 1998. "The Cyclicality of Markups in a Model with Adjustment Costs: Econometric Evidence for US Industry," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 121-42, May.
    6. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September.
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    Cited by:
    1. Eugenio Gaiotti & Alessandro Secchi, 2004. "Is there a cost channel of monetary policy transmission? An investigation into the pricing behaviour of 2,000 firms," Temi di discussione (Economic working papers) 525, Bank of Italy, Economic Research and International Relations Area.
    2. Winther, K. Tobias, 2008. "Analyzing new profit opportunities: a guide to making business projects financially successful," MPRA Paper 11346, University Library of Munich, Germany.
    3. Jonathan L. Willis, 2003. "Implications of structural changes in the U.S. economy for pricing behavior and inflation dynamics," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-27.
    4. Neubecker, Leslie, 2005. "Collusion and cyclic pricing by managers in markets with fluctuating demand," Economics Letters, Elsevier, vol. 88(2), pages 164-169, August.
    5. Akbar Ullah & Ejaz Ghani & Attiya Y. Javed, 2013. "Market Power and Industrial Performance in Pakistan," PIDE-Working Papers 2013:88, Pakistan Institute of Development Economics.

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