Markups Across the Income Distribution: Measurement and Implications

141 Pages Posted: 2 May 2022 Last revised: 30 Nov 2023

Date Written: May 2, 2022

Abstract

I examine the relationship between customer income and firm markups using rich data on household transactions and wholesale costs. Over the observed purchases, high-income households pay 15pp higher retail markups than low-income households. Half of the markup gap is due to differences in markups paid at the same store. Conditional on income, markups paid by a household also increase when a household shops in high-income areas, shops at retail chains with locations in other high-income areas, or purchases products with a high-income customer base. A model in which household search intensity depends on opportunity cost of time can account for these facts. Consistent with the model’s predictions, I document that retail markups across cities rise with both per-capita income and inequality. Through the lens of the model, changes in the income distribution since 1950 account for a 10–14pp rise in retail markups, with 25 percent of the increase due to growing income dispersion. This rise in markups consists of within-firm markup increases as well as a reallocation of sales to high-markup firms, which occurs without any change to the nature of firm production or competition.

Keywords: Markups, Price Elasticity, Income Distribution, Search

JEL Classification: D2, D31, E31, L2

Suggested Citation

Sangani, Kunal, Markups Across the Income Distribution: Measurement and Implications (May 2, 2022). Available at SSRN: https://ssrn.com/abstract=4092068 or http://dx.doi.org/10.2139/ssrn.4092068

Kunal Sangani (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
345
Abstract Views
1,950
Rank
156,982
PlumX Metrics