DP12044 | Sales and Markup Dispersion: Theory and Empirics

Publication Date

05/11/2017

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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, lognormal, and Frechet), the distributions of productivity and sales 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; empirically, to explain sales and markups distributions, the choice between Pareto and lognormal productivity distributions matters less than the choice between CREMR and other demands.