DP15513 Markups Across Space and Time

Author(s): Eric Anderson, Sérgio Rebelo, Arlene Wong
Publication Date: December 2020
Keyword(s): business cycles, Gross margins, Marginal costs, prices
JEL(s): E30
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15513

In this paper, we provide direct evidence on the behavior of markups in the retail sector across space and time. Markups are measured using gross margins. We consider three levels of aggregation: the retail sector as a whole, the firm level, and the product level. We find that: (1) markups are relatively stable over time and mildly procyclical; (2) there is large regional dispersion in markups; (3) there is positive cross-sectional correlation between local income and local markups; and (4) differences in markups across regions are explained by differences in assortment within each goods category, not by deviations from uniform pricing. We propose an endogenous assortment model consistent with these facts.