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Granular Markups and Inflation Surge: The Role of Managerial Incentives

Author

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  • Chen, Yuchen
  • Salomao, Juliana
  • Sharma, Varun
  • Wang, Yicheng

Abstract

We develop a novel methodology to estimate firm-specific markup premiums using highly granular product-level data that controls for common shocks, isolating the premium as a residual. We validate this measure by comparing it to existing accounting-based estimates and by showing that it exhibits expected correlations with firm size and market share. Unlike traditional approaches, our method can be applied to both public and private firms, enabling an analysis of how financial structure and managerial incentives influence pricing decisions. We find that financial structure matters: public firms systematically increase markups following an IPO. Moreover, during the 2021–2022 inflation surge, publicly listed firms expanded their margins by capitalizing on inflationary pressures—especially among firms with high retail ownership, large early-pandemic stock declines, and strong equity-based pay incentives.

Suggested Citation

  • Chen, Yuchen & Salomao, Juliana & Sharma, Varun & Wang, Yicheng, 2025. "Granular Markups and Inflation Surge: The Role of Managerial Incentives," CEPR Discussion Papers 20577, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20577
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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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