Measuring market power: macro- and micro-evidence from Italy

In this paper, we provide an assessment of the evolution of markups in Italy in the last twenty years. To this aim, we resort to both macro- and micro-data and estimation techniques, namely reduced forms accounting measures (price–cost margins) and production function model-based indicators. When using aggregate data, we present a comparative study with respect to the other main Euro area countries, whereas the micro-level analysis focuses on the markup dynamics across and within Italian firms. According to our findings, (i) aggregate markups show flat/slightly decreasing dynamics across EU countries, settling to a 1.1 level on average; (ii) the aggregate dynamics hide substantial cross-sector and cross-firm heterogeneity; (iii) the within-firm component is the most relevant driver of markup dynamics; and (iv) no superstars-driven dynamics emerge: although firms with higher markups show slightly more variation over time, there is no evidence of an increasing trend. Finally, we compare our results with those obtained by De Loecker and Eeckhout (Global market power, National Bureau of Economic Research, Cambridge, 2018) and show that they differ mainly because our sample, including non-listed firms, is more representative of the EU corporate sectors. Our study has important policy implications: it warns against blindly extending the conclusions valid for specific contexts to others with different characteristics, while inviting a careful assessment of the actual competitive landscape, based on representative datasets and robust analyses.