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Markups and Marginal Cost over the Firm Life

Author

Listed:
  • Adam, Klaus
  • Renkin, Tobias
  • Züllig, Gabriel

Abstract

We use data on firm-level prices and output to estimate the dynamics of markups, marginal cost and prices over the life-cycle of Danish manufacturing firms. Markups increase by 8 percentage points over the first 20 years of firms’ lives. This reflects a substantial decrease of marginal cost that is only partially passed on into prices. The increase in markups coincides with increased product turnover — both introductions and discontinuations — among young firms. We show that despite the strong age profile in markups, and an increasing average firm age due to declining entry, the direct effect of firm aging on recent markup trends is small. Our findings have implications for a number of other macroeconomic theories and trends.

Suggested Citation

  • Adam, Klaus & Renkin, Tobias & Züllig, Gabriel, 2025. "Markups and Marginal Cost over the Firm Life," CEPR Discussion Papers 20805, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20805
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    File URL: https://cepr.org/publications/DP20805
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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