Do markup dynamics reflect fundamentals or changes in conduct?

Arbeitspapier

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 are 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 US and five major European banking sectors indicate substantially different behavior of conventional raw markups and conduct-induced markups.

Object Details

• ISBN: 978-952-462-507-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 12/2009

Classification and Topics

• Classification: Wirtschaft ; Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models ; Model Construction and Estimation ; Financial Institutions and Services: General ; Oligopoly and Other Imperfect Markets ; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
• Subject: markups ; cointegration ; VAR ; macroeconomic fundamentals ; competition ; banking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Juselius, Mikael ; Kim, Moshe ; Ringbom, Staffan
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/212133
• Last update: 10.03.2025, 11:42 AM CET