Abstract
We study the welfare costs of markups in a dynamic model with hetero- geneous firms and endogenous markups. We provide aggregation re- sults summarizing the macro implications of micro-level markup het- erogeneity. We calibrate our model to US Census of Manufactures data and find that the costs of markups can be large. We decompose the costs into three channels: an aggregate markup that acts like a uni- form output tax, misallocation of factors of production, and ineffi- cient entry. We find that the aggregate-markup and misallocation channels account for most of the costs of markups and that the entry channel is much less important.
Original language | English (US) |
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Pages (from-to) | 1619-1675 |
Number of pages | 57 |
Journal | Journal of Political Economy |
Volume | 131 |
Issue number | 7 |
DOIs | |
State | Published - Jul 2023 |
ASJC Scopus subject areas
- Economics and Econometrics