Markups and export behavior: Firm‐level evidence from the French food processing industry

Abstract

AbstractThe relationship between a firm's markups and its export behavior is highly relevant to individual firms' strategic decisions as well as to governments' policies regarding competition. We investigate the impact of markups on firms' decisions to export and resulting export intensity in the French food processing industry. Moreover, we assess the effect of entry into and remaining in the export market on firms' markups and evaluate differences in markups between exporters and non‐exporters. Our results suggest that higher markups lead to both increased participation in the export market and greater export intensity. In addition, we find that firms obtain higher markups by entering and remaining in the export market. Finally, our results suggest that exporters generate higher markups, on average, than non‐exporters. Similar results are found when controlling for differences in firms' productivity. Our findings suggest that trade policies designed to increase firms' participation in export markets, such as limits to border restrictions, may counteract domestic competition policies targeted at price–cost margins.