Secular Rise and Pro-Cyclical Variation in Markups: Evidence from US Grocery Stores

38 Pages Posted: 7 Sep 2023 Last revised: 8 Jan 2024

See all articles by Bulat Gafarov

Bulat Gafarov

Department of Agricultural and Resource Economics, UC Davis

Tengda Gong

University of California, Davis

Jens Hilscher

University of California, Davis

Date Written: June 13, 2023

Abstract

This paper documents substantial time variation in price elasticities of demand and therefore markups. We propose a two-step procedure to identify time-varying markups. Using the scanner data of US grocery stores from 2001 to 2020 we first estimate elasticities at the market-good-year level. We then efficiently aggregate these data by year to estimate a common trend and cyclical variation in elasticities and impute markups from there. We estimate (i) a secular increase in U.S. grocery store markups of 3.9% per year over the sample period and (ii) an average 13.6% cyclical decline at times of aggregate demand contractions. Our results imply pro-cyclical changes in markups. Across markets, elasticities vary with market-wide factors that we expect to influence preferences and market structure - real GDP, unemployment and market concentration.

Keywords: Markups, demand estimation, panel IV, scanner data

JEL Classification: E3, L8

Suggested Citation

Gafarov, Bulat and Gong, Tengda and Hilscher, Jens, Secular Rise and Pro-Cyclical Variation in Markups: Evidence from US Grocery Stores (June 13, 2023). Available at SSRN: https://ssrn.com/abstract=4551482 or http://dx.doi.org/10.2139/ssrn.4551482

Bulat Gafarov

Department of Agricultural and Resource Economics, UC Davis ( email )

One Shields Avenue
SS&H Building
Davis, CA 95616
United States

Tengda Gong (Contact Author)

University of California, Davis ( email )

CA
United States
5305745810 (Phone)

Jens Hilscher

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States

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