Secular Rise and Pro-Cyclical Variation in Markups: Evidence from US Grocery Stores
38 Pages Posted: 7 Sep 2023
Date Written: June 13, 2023
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: Suggested Citation