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Markups for consumers

Author

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  • Ganglmair, Bernhard
  • Kann, Alexander
  • Tsanko, Ilona

Abstract

A central motivating factor for studying price markups is their effect on consumer welfare. Reported estimates of (firm-level) price markups in the literature, however, are often focused on industry or cross-country comparisons. These treat different industries equally rather than based on how relevant they are for consumers. We propose markup measures in which firm-level price markups are weighted according to consumption expenditures in the respective industries. Using a concordance table between consumption categories (otherwise used for the calculation of consumer price indices) and a firm's industry classification, we report results for Germany for the years 2002 through 2016. We find that consumption-weighted price markups are higher than the conventionally reported revenue-weighted markups. We further show that consumption-weighted markups have increased faster, in particular for medium-income households, which highlights a potential role of price markup as a contributing factor to changes of inequality in society.

Suggested Citation

  • Ganglmair, Bernhard & Kann, Alexander & Tsanko, Ilona, 2020. "Markups for consumers," ZEW Discussion Papers 20-079, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:20079
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    References listed on IDEAS

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    1. Brian Nolan & Matteo G. Richiardi & Luis Valenzuela, 2019. "The Drivers Of Income Inequality In Rich Countries," Journal of Economic Surveys, Wiley Blackwell, vol. 33(4), pages 1285-1324, September.
    2. Greg Kaplan & Piotr Zoch, 2020. "Markups, Labor Market Inequality and the Nature of Work," Working Papers 2020-09, Becker Friedman Institute for Research In Economics.
    3. Jan De Loecker & Paul T. Scott, 2016. "Estimating market power Evidence from the US Brewing Industry," NBER Working Papers 22957, National Bureau of Economic Research, Inc.
    4. Ganglmair, Bernhard & Hahn, Nadine & Hellwig, Michael & Kann, Alexander & Peters, Bettina & Tsanko, Ilona, 2020. "Price markups, innovation, and productivity: Evidence from Germany," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, volume 8, number 222995.
    5. Ronald U. Mendoza, 2011. "Why do the poor pay more? Exploring the poverty penalty concept," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(1), pages 1-28, January.
    6. McAdam, Peter & Petroulakis, Filippos & Vansteenkiste, Isabel & Cavalleri, Maria Chiara & Eliet, Alice & Soares, Ana, 2019. "Concentration, market power and dynamism in the euro area," Working Paper Series 2253, European Central Bank.
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    More about this item

    Keywords

    COICOP; consumption weights; Germany; inequality; price markups;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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