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The convergence of price-cost margins

This paper gives estimates of sectoral markup trends in thirteen OECD countries over the last three decades. It concludes with a slight, albeit heterogeneous, increase in price-cost margins (PCMs) overall, contrary to the generally expected effect of increased competition. More strikingly, it establishes a clear pattern of PCM convergence both across countries and sectors. This convergence means that high margins have shrunk and low margins grown. These movements seem to be linked to the decline in the labour share. They point to a need to search for factors counterbalancing the pro-competitive effect on markups.

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File URL: ftp://mse.univ-paris1.fr/pub/mse/cahiers2005/Bla05056.pdf
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla05056.

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Length: 33 pages
Date of creation: Sep 2005
Date of revision:
Handle: RePEc:mse:wpsorb:bla05056
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  1. Hoekman, Bernard & Hiau Looi Kee & Olarreaga, Marcelo, 2001. "Markups, entry regulation, and trade - Does country size matter?," Policy Research Working Paper Series 2662, The World Bank.
  2. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
  3. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  4. Davies, Stephen & Lyons, Bruce, 1996. "Industrial Organization in the European Union: Structure, Strategy, and the Competitive Mechanism," OUP Catalogue, Oxford University Press, number 9780198289739, June.
  5. Kramarz, Francis, 2003. "Wages and International Trade," CEPR Discussion Papers 3936, C.E.P.R. Discussion Papers.
  6. Martin D D Evans & Viktoria Hnatkovska, 2006. "International Capital Flows Returns and World Financial Integration," 2006 Meeting Papers 60, Society for Economic Dynamics.
  7. Hervé Boulhol, 2005. "The upward bias of markups estimated from the price-based methodology," Cahiers de la Maison des Sciences Economiques bla05055, Université Panthéon-Sorbonne (Paris 1).
  8. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
  9. James A. Brander & Paul Krugman, 1983. "A 'Reciprocal Dumping' Model of International Trade," NBER Working Papers 1194, National Bureau of Economic Research, Inc.
  10. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
  11. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
  12. Collins, Norman R & Preston, Lee E, 1969. "Price-Cost Margins and Industry Structure," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 271-86, August.
  13. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
  14. Julio J. Rotemberg & Michael Woodford, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," NBER Working Papers 5634, National Bureau of Economic Research, Inc.
  15. George J. Borjas & Valerie A. Ramey, 1995. "Foreign Competition, Market Power, and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1075-1110.
  16. Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57.
  17. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135 Elsevier.
  18. Anindya Banerjee & Bill Russell, 2000. "The Relationship between the Markup and Inflation in the G7 Economies and Australia," Dundee Discussion Papers in Economics 119, Economic Studies, University of Dundee.
  19. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  20. Oliver J. Blanchard, 1997. "The Medium Run," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 89-158.
  21. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1997. "Sticky price and limited participation models of money: A comparison," European Economic Review, Elsevier, vol. 41(6), pages 1201-1249, June.
  22. repec:rus:hseeco:122439 is not listed on IDEAS
  23. Fontagne, Lionel & Daniel Mirza, 2002. "International Trade and Rent Sharing in Developed and Developing countries," Royal Economic Society Annual Conference 2002 77, Royal Economic Society.
  24. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
  25. Joaquim Oliveira Martins & Stefano Scarpetta, 2002. "Estimation of the Cyclical Behaviour of Mark-ups: A Technical Note," OECD Economic Studies, OECD Publishing, vol. 2002(1), pages 173-188.
  26. Schmalensee, Richard., 1987. "Inter-industry studies of structure and performance," Working papers 1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  27. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 541-585.
  28. Bottasso, Anna & Sembenelli, Alessandro, 2001. "Market power, productivity and the EU Single Market Program: Evidence from a panel of Italian firms," European Economic Review, Elsevier, vol. 45(1), pages 167-186, January.
  29. Bruno Crépon & Rozen Desplatz & Jacques Mairesse, 2010. "Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 583-610 National Bureau of Economic Research, Inc.
  30. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Business Cycles and the Relationship Between Concentration and Price-Cost Margins," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 1-17, Spring.
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