Do larger firms exert more market power? Markups and markdowns along the size distribution

Mertens, Matthias and Mottironi, Bernardo (2023) Do larger firms exert more market power? Markups and markdowns along the size distribution. CEP Discussion Papers (CEPDP1945). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2023 The Author(s)
Divisions:	School of Public Policy ?? SCPP ??
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management H Social Sciences > HD Industries. Land use. Labor
JEL classification:	L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales J - Labor and Demographic Economics > J4 - Particular Labor Markets > J42 - Monopsony; Segmented Labor Markets
Date Deposited:	24 Jan 2024 17:57
Last Modified:	24 Jan 2024 18:03
URI:	http://eprints.lse.ac.uk/id/eprint/121283

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