Time Use and the Efficiency Of Heterogeneous Markups

36 Pages Posted: 15 Jan 2025

See all articles by Brian C. Albrecht

Brian C. Albrecht

International Center for Law & Economics (ICLE)

Thomas Phelan

Federal Reserve Bank of Cleveland

Nick Pretnar

Carnegie Mellon University - David A. Tepper School of Business

Abstract

What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, markup heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model so that preferences depend non-separably on off-market time and show how this changes the equilibrium and efficient distributions of productivity and markups. With constant elasticity of substitution across varieties, firm selection is inefficiently lax when off-market time and market goods are complements and inefficiently strict when they are substitutes. However, when off-market time and market goods are perfect complements, markups differ across firms and yet the equilibrium allocation is efficient.

Keywords: monopolistic competition, markups, efficiency, time use, selection, heterogeneous firms

Suggested Citation

Albrecht, Brian C. and Phelan, Thomas and Pretnar, Nicholas, Time Use and the Efficiency Of Heterogeneous Markups. Available at SSRN: https://ssrn.com/abstract=5097764 or http://dx.doi.org/10.2139/ssrn.5097764

Brian C. Albrecht

International Center for Law & Economics (ICLE) ( email )

5005 SW Meadows Rd.
Suite 300
Lake Oswego, OR 97035
United States

Thomas Phelan

Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

HOME PAGE: http://https://www.clevelandfed.org/our-research/economists/tom-phelan.aspx

Nicholas Pretnar (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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