How Costly Are Markups?

Chris Edmond, Virgiliu Midrigan, Daniel Yi Xu

    Research output: Contribution to journalArticlepeer-review


    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 languageEnglish (US)
    Pages (from-to)1619-1675
    Number of pages57
    JournalJournal of Political Economy
    Issue number7
    StatePublished - Jul 2023

    ASJC Scopus subject areas

    • Economics and Econometrics


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