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Countercyclical markup is a leading hypothesis in representative agent models of macroeconomic fluctuations; however, substantial heterogeneity across firms is documented at the micro-level. I test this hypothesis using an extensive firm-level data on Belgian manufacturing firms covering the period 1996-2014. I measure a firm’s markup as the wedge between its output elasticity of material inputs and their share in revenues. Consistent with recent studies challenging the findings of countercyclical markups I find that, on average, firmlevel markups appear to be procyclical. However, firms’ markups appear to be procyclical or acyclical depending on their size, age, end-use of products, and technological intensity. ispartof: VIVES Discussion Paper status: Published online

This article proposes a novel mechanism by which changes in the distribution of money holdings have real aggregate effects. I develop a flexible-price model of segmented asset markets in which monetary policy influences the aggregate demand elasticity via heterogenous money holdings. Because varieties of consumption bundles are purchased sequentially, newly injected money disseminates slowly throughout the economy via second-round effects. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and pro-cyclical wages after monetary shocks. Among other correlations of financial variables, it also reproduces the empirical, negative relationship between changes in the money supply and markups.

In this paper we present a simple theory-based measure of the variations in aggregate economic efficiency: the gap between the marginal product of labor and the household s consumption/leisure tradeoff. We show that this indicator corresponds to the inverse of the markup of price over social marginal cost, and give some evidence in support of this interpretation. We then show that, with some auxilliary assumptions our gap variable may be used to measure the efficiency costs of business fluctuations. We find that the latter costs are modest on average. However, to the extent the flexible price equilibrium is distorted, the gross efficiency losses from recessions and gains from booms may be large. Indeed, we find that the major recessions involved large efficiency losses. These results hold for reasonable parameterizations of the Frisch elasticity of labor supply, the coefficient of relative risk aversion, and steady state distortions.

This paper examines how segmented asset markets can generate real and nominal effects of monetary policy. I develop a model, in which varieties of consumption bundles are purchased sequentially. Newly injected money thus disseminates slowly through the economy via second-round effects and induces a longer-lasting, non-degenerate wealth distribution. As a result, the demand elasticity differs across consumers, affecting optimal markups chosen by producers. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical wages and expenditure dispersion across consumers after monetary shocks. Including a modest degree of real or nominal wage rigidity yields responses that are also quantitatively in line with empirical evidence.

In this paper we present a simple, theory-based measure of the variations in aggregate economic efficiency associated with business fluctuations. We decompose this indicator, which we refer to as “the gap”, into two constituent parts: a price markup and a wage markup, and show that the latter accounts for the bulk of the fluctuations in our gap measure. We also demonstrate the connection between our gap measure and the gap between ouput and its natural level, a more traditional indicator of aggregate inefficiency. Finally, we derive a measure of the welfare costs of business cycles that is directly related to our gap variable. Our welfare measure corresponds to the inefficient component of economic fluctuations, and should thus be interpreted as a lower bound to the costs of the latter. When applied to postwar U.S. data, for some plausible parametrizations, our measure indicates non-negligible welfare losses of gap fluctuations. The results, however, hinge critically on some key parameters, including the intertemporal elasticity of labor supply.

We develop a model in which a profit-maximizing monopolist with uncertain cost of production sells to loss-averse, yet rational, consumers. We first introduce (portable) techniques for analyzing the demand of such consumers, and then investigate the monopolist's pricing strategy. Compared to lower possible purchase prices, paying a higher price in the firm's pricing distribution is assessed by consumers as a loss, decreasing demand for the firm's product. We provide conditions under which a firm with continuously distributed marginal cost responds by (locally) eliminating this "comparison effect" and choosing a discrete price distribution; that is, prices are "sticky". Price stickiness is more likely to obtain when the cost distribution has high density, the price responsiveness of demand is low, or consumers are likely to purchase. Whether or not prices are sticky, the monopolist wants to at least mitigate the comparison effect, leading to countercyclical markups. On the other hand, if consumers expect to buy the product, they experience a loss if they end up not consuming it, increasing their willingness to pay for it. Thus, despite the tendency toward price stability, there are also circumstances in which a firm with unchanging cost offers random "sales" to increase customers' expectation to consume, attracting more demand at higher prices. ZUSAMMENFASSUNG - (Strategisches Preissetzungsverhalten mit verlustaversen Konsumenten) Wir analysieren das optimale Verhalten eines profitmaximierenden Monopolisten mit stochastischen Produktionskosten, der an rationale, verlustaverse Konsumenten verkauft. Hierzu entwickelt der Beitrag übertragbare Techniken, die es erlauben, die Nachfrage von verlustaversen Konsumenten herzuleiten, und bestimmt die optimale Preissetzungsstrategie des Monopolisten. Ein Konsument empfindet einen Verlust, wenn er den von ihm gezahlten Kaufpreis mit erwarteten niedrigeren Preisen des Monopolisten vergleicht. Dieser Verlust reduziert die Zahlungsbereitschaft des Konsumenten und senkt somit seine Nachfrage. Der Beitrag zeigt auf, unter welchen Bedingungen eine Firma mit kontinuierlich verteilten Grenzkosten diesen "Vergleichseffekt" (lokal) eliminiert, indem sie eine diskrete Preisverteilung wählt --- also, eine Preisverteilung mit Preisstarrheit. Diese Preisstarrheit tritt umso eher auf, je höher die Dichte der Kostenverteilung, je niedriger die Nachfrageelastizität oder je größer die Kaufwahrscheinlichkeit des Konsumenten ist. Unabhängig davon, ob die optimale Preisverteilung Preisstarrheit aufweist oder nicht, schwächt der Monopolist diesen Vergleichseffekt ab in dem er antizyklische Preisaufschläge verlangt. Auf der anderen Seite führt die Kauferwartung des Konsumenten dazu, dass er einen Verlust realisiert, wenn er das Gut nicht konsumieren kann. Eine höhere Kauferwartung führt somit zu einer höheren Zahlungsbereitschaft des Konsumenten. Daher kann es trotz der Tendenz zur Preisstarrheit auch Umstände geben, unter denen eine Unternehmung mit fixen Grenzkosten zufällige "Sonderangebote" macht, welche die Kauferwartung des Konsumenten erhöhen und somit mehr Nachfrage bei höheren Preisen generieren.

"Wir analysieren das optimale Verhalten eines profitmaximierenden Monopolisten mit stochastischen Produktionskosten, der an rationale, verlustaverse Konsumenten verkauft. Hierzu entwickelt der Beitrag übertragbare Techniken, die es erlauben, die Nachfrage von verlustaversen Konsumenten herzuleiten, und bestimmt die optimale Preissetzungsstrategie des Monopolisten. Ein Konsument empfindet einen Verlust, wenn er den von ihm gezahlten Kaufpreis mit erwarteten niedrigeren Preisen des Monopolisten vergleicht. Dieser Verlust reduziert die Zahlungsbereitschaft des Konsumenten und senkt somit seine Nachfrage. Der Beitrag zeigt auf, unter welchen Bedingungen eine Firma mit kontinuierlich verteilten Grenzkosten diesen 'Vergleichseffekt' (lokal) eliminiert, indem sie eine diskrete Preisverteilung wählt - also, eine Preisverteilung mit Preisstarrheit. Diese Preisstarrheit tritt umso eher auf, je höher die Dichte der Kostenverteilung, je niedriger die Nachfrageelastizität oder je größer die Kaufwahrscheinlichkeit des Konsumenten ist. Unabhängig davon, ob die optimale Preisverteilung Preisstarrheit aufweist oder nicht, schwächt der Monopolist diesen Vergleichseffekt ab in dem er antizyklische Preisaufschläge verlangt. Auf der anderen Seite führt die Kauferwartung des Konsumenten dazu, dass er einen Verlust realisiert, wenn er das Gut nicht konsumieren kann. Eine höhere Kauferwartung führt somit zu einer höheren Zahlungsbereitschaft des Konsumenten. Daher kann es trotz der Tendenz zur Preisstarrheit auch Umstände geben, unter denen eine Unternehmung mit fixen Grenzkosten zufällige 'Sonderangebote' macht, welche die Kauferwartung des Konsumenten erhöhen und somit mehr Nachfrage bei höheren Preisen generieren." (Autorenreferat) "We develop a model in which a profit-maximizing monopolist with uncertain cost of production sells to loss-averse, yet rational, consumers. We first introduce (portable) techniques for analyzing the demand of such consumers, and then investigate the monopolist's pricing strategy. Compared to lower possible purchase prices, paying a higher price in the firm's pricing distribution is assessed by consumers as a loss, decreasing demand for the firm's product. We provide conditions under which a firm with continuously distributed marginal cost responds by (locally) eliminating this 'comparison effect' and choosing a discrete price distribution; that is, prices are 'sticky'. Price stickiness is more likely to obtain when the cost distribution has high density, the price responsiveness of demand is low, or consumers are likely to purchase. Whether or not prices are sticky, the monopolist wants to at least mitigate the comparison effect, leading to countercyclical markups. On the other hand, if consumers expect to buy the product, they experience a loss if they end up not consuming it, increasing their willingness to pay for it. Thus, despite the tendency toward price stability, there are also circumstances in which a firm with unchanging cost offers random 'sales' to increase customers' expectation to consume, attracting more demand at higher prices." (author's abstract)

We extend the Rotemberg-Saloner's (1986) [Rotemberg, J., Saloner, G., 1986. A supergame-theoretic model of price wars during booms. American Economic Review 76:390–407] “implicit collusion” framework to the consideration of capital market imperfections, captured by a non-zero probability of liquidation of firms in recessionary periods. We show that the Rotemberg-Saloner result of countercyclical markups is quite robust to the extension and, moreover, liquidation risks may even strengthen the degree of markup countercyclicality.