Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/276959 
Year of Publication: 
2023
Series/Report no.: 
IWH-CompNet Discussion Papers No. 1/2023
Version Description: 
This version: September 18, 2023
Publisher: 
Halle Institute for Economic Research (IWH), Halle (Saale)
Abstract: 
Several models posit a positive cross-sectional correlation between markups and firm size, which characterizes misallocation, factor shares, and gains from trade. Accounting for labor market power in markup estimation, we find instead that larger firms have lower product markups but higher wage markdowns. The negative markup-size correlation turns positive when conditioning on markdowns, suggesting interactions between product and labor market power. Our findings are robust to common criticism (e.g., price bias, non-neutral technology) and hold across 19 European countries. We discuss possible mechanisms and resulting implications, highlighting the importance of studying input and output market power in a unified framework.
Subjects: 
firm size
markdowns
market power
markups
JEL: 
J42
L11
L13
L25
Document Type: 
Working Paper

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