Skip to Main content Skip to Navigation
New interface
Preprints, Working Papers, ...

Markups and markdowns

Abstract : This paper studies the high yet undocumented incidence of firms displaying markups lower than unity, i.e., prices lower than marginal costs, for protracted periods of time. Using a large sample of French manufacturing firms for the period 1990-2007, the paper estimates markups at the firm level and documents the extent to which firms exhibit negative price cost margins. The paper is able to provide an explanation for this phenomenon using the option value approach to investment decisions. The results suggest that firms facing higher investment irreversibility tend to continue operating even when prices fall below marginal costs as they wait for market conditions to improve. This effect is magnified in the presence of uncertainty.
Document type :
Preprints, Working Papers, ...
Complete list of metadata

https://hal-sciencespo.archives-ouvertes.fr/hal-03458822
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Tuesday, November 30, 2021 - 10:35:29 PM
Last modification on : Friday, March 25, 2022 - 3:58:39 AM

File

wp2017-11-markupsmarkdowns-cas...
Publisher files allowed on an open archive

Identifiers

Collections

Citation

Mauro Caselli, Stefano Schiavo, Lionel Nesta. Markups and markdowns. 2017. ⟨hal-03458822⟩

Share

Metrics

Record views

1

Files downloads

5