Do Markup Dynamics Reflect Fundamentals or Changes in Conduct?

44 Pages Posted: 10 Dec 2008 Last revised: 4 May 2011

See all articles by Mikael Juselius

Mikael Juselius

Bank for International Settlements (BIS) - Monetary and Economic Department; Hanken School of Economics - Department of Economics; University of Helsinki - Department of Political and Economic Studies

Moshe Kim

University of Haifa - Department of Economics

Staffan Ringbom

Swedish School of Economics and Business Administration

Multiple version iconThere are 3 versions of this paper

Date Written: December 10, 2008

Abstract

Persistent shifts in equilibria are likely to arise in oligopolistic markets and may be detrimental to the measurement of conduct, related markups and intensity of competition. We develop a cointegrated VAR (vector autoregression) based approach to detect long-run changes in conduct when data is difference stationary. Importantly, we separate the components in markups which are exclusively related to long-run changes in conduct from those explained solely by fundamentals. Our approach does not require estimation of markups and conduct directly, thereby avoiding complex problems in existing methodologies related to multiple and changing equilibria. Results from applying the model to the U.S. and five major European banking sectors indicate substantially different behavior of conventional raw markups and conduct-induced markups.

Keywords: Markups, cointegration, VAR, Macroeconomic fundamentals, competition, Banking

JEL Classification: C32, C51, G20, L13, L16

Suggested Citation

Juselius, Mikael and Kim, Moshe and Ringbom, Staffan, Do Markup Dynamics Reflect Fundamentals or Changes in Conduct? (December 10, 2008). Available at SSRN: https://ssrn.com/abstract=1314265 or http://dx.doi.org/10.2139/ssrn.1314265

Mikael Juselius (Contact Author)

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Hanken School of Economics - Department of Economics ( email )

PO Box 479
FI-00101 Helsinki
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Moshe Kim

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel
(972) 4 8240115 (Phone)
(972)4-8240059 (Fax)

Staffan Ringbom

Swedish School of Economics and Business Administration ( email )

P.O. Box 479
Helsinki, 00101
Finland
358 9 4313 3416 (Phone)
358 9 4313 3382 (Fax)

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