Macroeconomics Seminar Series - Sephorah Mangin (Australian National University)

Title: Competitive Dispersion, Price Dispersion, and Markups

Abstract: How does the distribution of competition across buyers affect markups and price dispersion? To answer this question, we introduce the concept of competitive dispersion. Competitive dispersion refers to dispersion in the degree of effective competition for different buyers. We study the effects of competitive dispersion on markups and price dispersion in a Burdett-Judd search-theoretic model of imperfect competition. We show that greater competitive dispersion can either increase or decrease both the aggregate markup and price dispersion. We calibrate the model and find that a 10% increase in competitive dispersion relative to the efficient benchmark leads to a 2.58% increase in the aggregate markup, a 3.84\% increase in price dispersion, and a 2.02% decrease in welfare.