SALES AND MARKUP DISPERSION: THEORY AND EMPIRICS

2 PM, Seminar Room, Department of Economics and Management, via Verdi 26

Speaker: Peter Neary, University of Oxford

Abstract

We derive exact conditions relating the distributions of firm productivity, sales, output, and markups to the form of demand; in particular, for a large family (including Pareto, log-normal, and Fr´echet), the distributions of productivity and output are the same if and only if demand is “CREMR” (Constant Revenue Elasticity of Marginal Revenue). We then use the Kullback-Leibler Divergence to quantify the information loss when a predicted distribution fails to match the actual one; and we find that, to explain sales and markups, the choice between Pareto and log-normal productivity distributions matters less than the choice between CREMR and other demands.

Keywords: CREMR Demands; Heterogeneous Firms; Kullback-Leibler Divergence; LogNormal Distribution; Pareto Distribution.

JEL Classification: F15, F23, F12