Measuring Market Power: Macro and Micro Evidence from Italy

53 Pages Posted: 14 Feb 2022

Date Written: February 4, 2022

Abstract

In this paper, we provide an assessment of the evolution of markups in Italy in the last twenty years. To this aim, we resort to both macro and micro data and estimation techniques, namely reduced forms accounting measures (price-cost margins) and production function model-based indicators. When using aggregate data, we adopt a comparative approach and analyse markup dynamics in the four main euro area countries, whereas the micro-level analysis is focused on Italy. According to our findings i) markups have shown flat/slightly decreasing dynamics in the last decades in the major EU countries, settling on average in level at 1.1; ii) aggregate dynamics hide substantial across sector and firms heterogeneity in markups patterns; iii) the micro-level analysis for Italy indicates the within-firms component as the most relevant in explaining markups behavior; iv) no top firms-driven dynamics emerge; v) our evidence conflicts with the results obtained in De Loecker and Eeckhout (2018) because the latter suffers of two main sources of bias: a strong sample selection, and the assumption of a common technology parameter across countries. Finally, we propose an encompassing measure of market power, summarizing the several indices investigated in a principal component framework. This synthetic indicator describes the markups evolution for the Italian economy and we confirm its effectiveness based on a set of validation variables.

Keywords: markups, competition measures, Euro Area, micro-macro data

JEL Classification: D2, D4, E2, L1, O3

Suggested Citation

Ciapanna, Emanuela and Formai, Sara and Linarello, Andrea and Rovigatti, Gabriele, Measuring Market Power: Macro and Micro Evidence from Italy (February 4, 2022). Bank of Italy Occasional Paper No. 672, Available at SSRN: https://ssrn.com/abstract=4032846 or http://dx.doi.org/10.2139/ssrn.4032846

Emanuela Ciapanna (Contact Author)

Bank of Italy ( email )

Research Department
Via Nazionale 91
Roma, 00184
Italy
00390647922188 (Phone)

Sara Formai

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Linarello

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Gabriele Rovigatti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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