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Linkage of Markups through Transaction

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  • NAKAMURA Tsuyoshi
  • OHASHI Hiroshi

Abstract

This paper analyzes how a firm's markup correlates to its suppliers' markups. Our research targeted more than 40,000 Japanese firms during 2001-16. The dataset is based on the Basic Survey of Japanese Business Structure and Activities, provided by METI, and supplemented by data from financial reports. Transactional relationships between firms are provided by the Firm Relation File, 2006, 2007, 2011, 2012, 2014, TSR. Markup values are estimated by the so-called ‘production approach’ proposed by De Loecker and Warzynski (2012) and De Loecker, Eeckhout, and Unger (2018). Controlling for firm characteristics such as productivity and age, and year- and industry-specific factors, a firm's markup has a significantly negative correlation with its suppliers' markups. For the entire sample, a firm whose suppliers observe 10% point higher markups has 2% point lower markup on average. This negative correlation is more remarkable for non-manufacturing firms than manufacturing ones. We discuss the factors for variation within Japanese firms' markups that produce these results.

Suggested Citation

  • NAKAMURA Tsuyoshi & OHASHI Hiroshi, 2019. "Linkage of Markups through Transaction," Discussion papers 19107, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:19107
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    References listed on IDEAS

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    6. Gabriele Rovigatti & Vincenzo Mollisi, 2018. "Theory and practice of total-factor productivity estimation: The control function approach using Stata," Stata Journal, StataCorp LP, vol. 18(3), pages 618-662, September.
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    Cited by:

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    2. Kosuke Aoki & Yoshihiko Hogen & Kosuke Takatomi, 2023. "Price Markups and Wage Setting Behavior of Japanese Firms," Bank of Japan Working Paper Series 23-E-5, Bank of Japan.

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