Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/268403
Authors: 
Mertens, Matthias
Mottironi, Bernardo
Year of Publication: 
2023
Series/Report no.: 
IWH Discussion Papers No. 1/2023
Publisher: 
Leibniz-Institut für Wirtschaftsforschung Halle (IWH), Halle (Saale)
Abstract: 
Several models posit a positive cross-sectional correlation between markups and firm size, which, among others, characterizes misallocation, factor shares, and gains from trade. Yet, taking labor market power into account in markup estimation, we show that larger firms have lower markups. This correlation turns positive only after conditioning on wage markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias) and hold across 19 European countries. We discuss the resulting implications and highlight studying input and output market power within an integrated framework as an important next step for future research.
Subjects: 
firm size
markdowns
market power
markups
JEL: 
J42
L11
L13
L25
Document Type: 
Working Paper

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