Secular rise and pro-cyclical variation in markups: Evidence from U.S. grocery stores

• Agricultural Economics Workshop

Date and Location

Thursday, October 12, 2023, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

This paper documents substantial time variation in price elasticities of demand and therefore markups. We propose a two-step procedure to identify time-varying markups. Using the scanner data of US grocery stores from 2001 to 2020 we first estimate elasticities at the market-good-year level. We then efficiently aggregate these data by year to estimate a common trend and cyclical variation in elasticities and impute markups from there. We estimate (i) a secular increase in U.S. grocery store markups of 3.9% per year over the sample period and (ii) an average 13.6% cyclical decline at times of aggregate demand contractions. Our results imply pro-cyclical changes in markups. Across markets, elasticities vary with market-wide factors that we expect to influence preferences and market structure—real GDP, unemployment and market concentration.

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