Working Paper: CEPR ID: DP15513
Authors: Eric Anderson; Sergio Rebelo; Arlene Wong
Abstract: 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.
Keywords: gross margins; prices; marginal costs; business cycles
JEL Codes: E30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| gross margins (L81) | markup stability (E64) |
| economic conditions (E66) | markup stability (E64) |
| local income (H79) | local markups (D49) |
| regional economic conditions (R11) | assortment of goods (L81) |
| assortment of goods (L81) | markup behavior (Y20) |
| local economic conditions (R11) | types of goods purchased (D12) |