Markups for Consumers

Abstract

Abstract A central motivating factor for studying price markups is their effect on consumer welfare. However, reported estimates of (firm-level) price markups in the literature often focus on industry or cross-country comparisons. These treat different industries equally rather than based on how relevant they are for consumers. We propose markup measures in which firm-level price markups are weighted according to consumption expenditures in the respective industries. Using a concordance table between consumption categories (otherwise used for the calculation of consumer price indices) and a firm’s industry classification, we report results for Germany for the years 2002 through 2016. We find that consumption-weighted price markups are higher and have increased faster than the conventionally reported revenue-weighted markups. We further show that consumption-weighted markups are highest for low-income households, highlighting the potential role of price markups as a contributing factor to changes in inequality in society.