2022/11/10 by Chris Edmond, Virgiliu Midrigan, Daniel Yi Xu · 1 citation
Economics, Econometrics and Finance · Business, Management and Accounting · #Economic theories and models #Corporate Finance and Governance #Corporate Taxation and Avoidance
paper · doi:10.1086/722986
We study the welfare costs of markups in a dynamic model with heterogeneous firms and endogenous markups. We provide aggregation results summarizing the macro implications of micro-level markup heterogeneity. 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 uniform output tax, misallocation of factors of production, and inefficient 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.