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

Author

Listed:
  • Michał Gradzewicz

    (Narodowy Bank Polski and SGH Warsaw School of Economics)

  • Jakub Mućk

    (Narodowy Bank Polski and SGH Warsaw School of Economics)

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).

Suggested Citation

  • Michał Gradzewicz & Jakub Mućk, 2020. "Unravelling the markups changes: the role of demand elasticity and concentration," NBP Working Papers 334, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:334
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    More about this item

    Keywords

    markups; price elasticity of demand; globalization;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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