El coste en bienestar de los márgenes en mercados de productos en España: un análisis con empresas heterogéneas
Series: Occasional Papers. 2611.
Author: Alfonso Camba, Matías Covarrubias, José Luis Rodríguez and Raquel Tárrega
Prices and margins
- Productivity
- Health, education and welfare
- Non-financial corporations, businesses
Full document
Abstract
This paper quantifies the welfare costs associated with market power in Spain. To this end, it examines markups in product markets using a dynamic model with heterogeneous firms, variable markups and endogenous firm entry. Adapting the methodology of Edmond, Midrigan and Xu (2023) to the Spanish context using data from the Banco de España’s Central Balance Sheet Data Office, we identify three distortion channels: the aggregate markup as a uniform tax, markup dispersion that generates inefficient resource allocation and inefficient firm entry. Our results indicate that, for an average markup of 20% above marginal cost, the welfare cost is equal to 16.94% of the representative consumer’s annual consumption, increasing non-linearly to 30.83% when the average markup is 25%. The main source of welfare loss comes from the aggregate markup, followed by resource misallocation, which reduces total factor productivity by between 1.3% and 2.9%. Firm entry distortions have comparatively smaller effects. These estimates are conservative due to the limited capture of markup heterogeneity and the use of moderate parameters for the share of materials in production. The results reaffirm the importance of promoting competition in Spain and indicate that even moderate markup reductions can have a notable impact, particularly if initial markups are high.