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Interpreting Markups in Spanish Manufacturing: The Exponential Model

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Equilibrium Theory for Cournot Oligopolies and Related Games

Part of the book series: Springer Series in Game Theory ((SSGT))

Abstract

In this paper, we present a model of oligopolistic competition where demand functions are exponential. We show that in such a model there is a unique Cournot equilibrium. This model predicts a monotonic relationship between the markup of a firm and its output. We present evidence, based on a sample of Spanish manufacturing firms, that this relationship is inverse.

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Notes

  1. 1.

    The first model that predicts variable markups is by Melitz and Ottaviano (2008).

  2. 2.

    Due to the methodology used to estimate the markups, our sample is a cross section and we cannot use lagged variables as instruments. It is also difficult to find exogenous instruments for the output that are not correlated with markups.

  3. 3.

    These properties also imply well-behaved comparative statics, see Corchón (1994).

  4. 4.

    We have approximated \((1-\rho )/\rho = 0.298\) by 0. 3.

  5. 5.

    Some papers have used this approach to analyze the effect of trade liberalization on average markups using panel data (see, for example Konings and Vandenbussche 2005; Konings et al. 2005). Moreno and Rodríguez (2011) used this methodology to study the impact of offshoring on margins.

  6. 6.

    This survey was carried out by the Fundación SEPI.

  7. 7.

    It is quite similar to one obtained by the standard approach. In complementary regressions (available upon request), using panel data, the average margin is 0.170.

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Acknowledgements

We thank Cesar Alonso, Carmen Beviá, Luis Cabral, Rosario Crino, Manuel Domínguez, Natalia Fabra, Philippe Gaignepain, Miguel Gonzalez-Maestre, Paco Marhuenda, Pierre von Mouche, Philipp Schmidt-Dengler, José María Sastre, Galina Zudenkova, an anonymous referee and participants in seminars at U. Carlos III, U. Complutense, Madrid, IEB U. of Barcelona, the 2011 EARIE meeting and the Jornadas de Economia Industrial 2011 for very helpful comments, Diego Rodríguez for programming support and María Hernández for research assistance. The first author acknowledges financial support from ECO2011-25330. The second author acknowledges financial support from ECO2010-19847.

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Correspondence to Luis C. Corchón .

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Corchón, L.C., Moreno, L. (2016). Interpreting Markups in Spanish Manufacturing: The Exponential Model. In: von Mouche, P., Quartieri, F. (eds) Equilibrium Theory for Cournot Oligopolies and Related Games. Springer Series in Game Theory. Springer, Cham. https://doi.org/10.1007/978-3-319-29254-0_9

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