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Endogenous Firm Competition and the Cyclicality of Markups

Author

Listed:
  • Hassan Afrouzi

    (Columbia University)

  • Luigi Caloi

    (Columbia University)

Abstract

We show that the cyclicality of output growth is a sufficient predictor for the cyclicality of markups in models that micro-found variable markups through dynamic trade-offs. We use data on markups from the U.S. as well as survey data on firms’ expectations from New Zealand to test the predictions of these models and find evidence in favor of their mechanisms. Finally, we study the implications of these mechanisms for cyclicality of markups in a calibrated general equilibrium model. In particular, we find that the degree of hump-shaped response in output is crucial for the direction of aggregate markup cyclicality.

Suggested Citation

  • Hassan Afrouzi & Luigi Caloi, 2024. "Endogenous Firm Competition and the Cyclicality of Markups," The Review of Economics and Statistics, MIT Press, vol. 106(6), pages 1638-1654, November.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:6:p:1638-1654
    DOI: 10.1162/rest_a_01281
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    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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