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Sales and Markup Dispersion: Theory and Empirics

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  • Monika Mrázová
  • J. Peter Neary
  • Mathieu Parenti

Abstract

We derive exact conditions relating the distributions of firm productivity, sales, output, and markups to the form of demand in monopolistic competition. Applications include a new “CREMR” demand function (Constant Revenue Elasticity of Marginal Revenue): it is necessary and sufficient for the distributions of productivity and sales to have the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and for Gibrat’s Law to hold over time; it implies a new class of distributions well-suited to capture the dispersion of markups; and it provides a parsimonious fit for the distributions of sales and markups superior to most widely-used alternatives.

Suggested Citation

  • Monika Mrázová & J. Peter Neary & Mathieu Parenti, 2018. "Sales and Markup Dispersion: Theory and Empirics," CESifo Working Paper Series 7433, CESifo.
  • Handle: RePEc:ces:ceswps:_7433
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    6. Bond, Steve & Hashemi, Arshia & Kaplan, Greg & Zoch, Piotr, 2021. "Some unpleasant markup arithmetic: Production function elasticities and their estimation from production data," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 1-14.
    7. Illenin O. Kondo & Logan T. Lewis & Andrea Stella, 2021. "Heavy Tailed, but not Zipf: Firm and Establishment Size in the U.S," Working Papers 21-15, Center for Economic Studies, U.S. Census Bureau.
    8. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Firms and Economic Performance: A View from Trade," Working Papers 1047, Barcelona School of Economics.
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    10. Macedoni, Luca & Weinberger, Ariel, 2022. "Quality heterogeneity and misallocation: The welfare benefits of raising your standards," Journal of International Economics, Elsevier, vol. 134(C).
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    13. Thibault Fally, 2018. "Integrability and Generalized Separability," NBER Working Papers 25025, National Bureau of Economic Research, Inc.
    14. Bagwell, Kyle & Lee, Seung Hoon, 2020. "Trade policy under monopolistic competition with firm selection," Journal of International Economics, Elsevier, vol. 127(C).
    15. Luca Macedoni & Mingzhi (Jimmy) Xu, 2022. "Flexibility And Productivity: Toward The Understanding Of Firm Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1055-1108, August.
    16. Pascal Belan & Clément Carbonnier & Martine Carré, 2021. "Fiscal Devaluation with Endogenous Markups: Productivity and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(4), pages 1159-1189, October.
    17. Thede, Susanna & Karpaty, Patrik, 2023. "Effects of corruption on foreign direct investment: Evidence from Swedish multinational enterprises," Journal of Comparative Economics, Elsevier, vol. 51(1), pages 348-371.
    18. Illenin O. Kondo & Logan T. Lewis & Andrea Stella, 2023. "Heavy tailed but not Zipf: Firm and establishment size in the United States," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 767-785, August.
    19. Ziran Ding, 2022. "Firm heterogeneity, variable markups, and multinational production: A review from trade policy perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 36(5), pages 1311-1357, December.
    20. Illenin O. Kondo & Logan T. Lewis & Andrea Stella, 2018. "On the U.S. Firm and Establishment Size Distributions," Finance and Economics Discussion Series 2018-075, Board of Governors of the Federal Reserve System (U.S.).
    21. Djolaud, Guy, 2022. "Import Penetration of Low Quality Products : Markups Implications," MPRA Paper 114611, University Library of Munich, Germany.

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    More about this item

    Keywords

    CREMR demands; Gibrat’s Law; heterogeneous firms; Kullback-Leibler divergence; lognormal versus Pareto distributions; sales and markup distributions;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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