Sales and Markup Dispersion: Theory and Empirics

80 Pages Posted: 21 Feb 2019

See all articles by Monika Mrazova

Monika Mrazova

University of Geneva - Department of Economics

J. Peter Neary

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Mathieu Parenti

Catholic University of Louvain (UCL)

Multiple version iconThere are 2 versions of this paper

Date Written: 2018

Abstract

We derive exact conditions relating the distributions of firm productivity, sales, output, and markups to the form of demand in monopolistic competition. Applications include a new “CREMR” demand function (Constant Revenue Elasticity of Marginal Revenue): it is necessary and sufficient for the distributions of productivity and sales to have the same form (whether Pareto, lognormal, or Fréchet) in the cross section, and for Gibrat’s Law to hold over time; it implies a new class of distributions well-suited to capture the dispersion of markups; and it provides a parsimonious fit for the distributions of sales and markups superior to most widely-used alternatives.

Keywords: CREMR demands, Gibrat’s Law, heterogeneous firms, Kullback-Leibler divergence, lognormal versus Pareto distributions, sales and markup distributions

JEL Classification: F150, F230, F120

Suggested Citation

Mrazova, Monika and Neary, J. Peter and Parenti, Mathieu, Sales and Markup Dispersion: Theory and Empirics (2018). CESifo Working Paper No. 7433, Available at SSRN: https://ssrn.com/abstract=3338787 or http://dx.doi.org/10.2139/ssrn.3338787

Monika Mrazova (Contact Author)

University of Geneva - Department of Economics ( email )

102 Bd Carl Vogt
Geneva 4, 1211
Switzerland

J. Peter Neary

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Mathieu Parenti

Catholic University of Louvain (UCL) ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

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