Markups Across Space and Time

Abstract

We study the behavior of markups in the retail sector. Markups are measured with gross margins computed at the product level using the replacement cost for every item. We find that: (1) markups are relatively stable over time and mildly procyclical; (2) there is a large regional dispersion in markups; (3) regions with higher incomes have higher markups; (4) these higher markups do not result from less intense competition or regional differences in marginal costs; and (5) regional differences in markups are due to variations in assortment, not to deviations from uniform pricing practices. We propose a simple model consistent with these facts.