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Scalable Demand and Markups

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Abstract

We study changes in markups across 72 product markets from 2006 to 2018. A growing literature has documented a rise in markups over time using a production function approach; we instead employ the standard microeconomic method, which is to estimate demand and then invert firms’ first-order pricing conditions to infer their markups. To make the method scalable, we propose estimating nested logit demand models, using household panel data to automate the assignment of products to nests. Our results indicate an overall upward trend in markups between 2006 and 2018, with considerable heterogeneity across and within product markets. We find that changes in firms’ marginal costs and households’ price sensitivity are the primary drivers of markup increases with changes in firm ownership playing a much smaller role.

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  • Enghin Atalay & Erika Frost & Alan Sorensen & Christopher Sullivan & Wanjia Zhu, 2023. "Scalable Demand and Markups," Working Papers 23-15, Federal Reserve Bank of Philadelphia.
  • Handle: RePEc:fip:fedpwp:96527
    DOI: 10.21799/frbp.wp.2023.15
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    Cited by:

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    2. Ambrocio, Gene, 2023. "Demographic aging and the New Keynesian Phillips Curve," Bank of Finland Research Discussion Papers 16/2023, Bank of Finland.

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    More about this item

    Keywords

    markups; demand estimation;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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