A Tale of Two Markups: Reconciling Supply- and Demand-Based Estimates
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Series
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Speaker(s)Luca Dedola (ECB, Germany)
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FieldMacroeconomics
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LocationErasmus University Rotterdam, Campus Woudestein, Polak 2-04
Rotterdam -
Date and time
April 07, 2025
11:30 - 12:30
Abstract
Combining sales and price scanner data with firm
balance sheet data on variable input expenditures and revenues, we estimate
firm-level price markups using two widely used methods, based on production
function estimation and demand system estimation. Despite their theoretical
equivalence in many general equilibrium frameworks, the two methods result in
markup estimates negatively correlated across firms. Considering a demand
system that allows for household heterogeneity and its impact on market shares,
we show that resulting demand-based markups become more positively correlated
with supply-based markups estimated with flexible production functions and
firm-specific prices.