Price-Cost Mark-Ups in the Spanish Economy: A Microeconomic Perspective
42 Pages Posted: 6 May 2014
Date Written: May 5, 2014
This paper explores the dynamics of price-cost mark-ups using firm-level data, paying particular attention to the crisis period 2008-2011. To this end, we apply the econometric framework developed by Klette (1999) to a comprehensive sample of Spanish non-financial corporations in order to estimate price-cost mark-ups for the period 1995-2011 at the aggregate and sectoral levels. The results reveal a widespread pattern of increasing price-cost mark-ups since 2008, both by industry and firm size. Moreover, with the aim of interpreting the pattern identified in our findings, we also relate the changes in our industry-level estimates of price-cost margins between 2007 and 2011 to some relevant industry characteristics suggested by the literature, with an emphasis on the extent of market power and of financial pressure. We find a positive and statistically significant association between the growth rate of estimated mark-ups and both our direct measure of market power and our proxy of financial pressure.
Keywords: mark-ups, returns to scale, production function, market power, financial pressure, GMM estimator, rolling regression
JEL Classification: C23, C26, D24, E31, L11, L16
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