Interpreting Markups in Spanish Manufacturing: The Exponential Model

Abstract

In this paper we attempt to rationalize markups in a sample of Spanish manufacturing by assuming a representative consumer, pro…t-maximizing …rms and constant returns to scale. We …nd that the standard forms of demand (CES and linear) do not provide a good explanation of markups.In contrast, a model where the representative consumer has an exponential utilty function yields results that match data more closely.We thank Carmen Beviá, Luis Cabral, Natalia Fabra, José María Sastre, Galina Zudenkova and the participants in a seminar at Carlos III University, especially Cesar Alonso and Paco Marhuenda, for very helpful comments, and Diego Rodríguez for programming support and data. The …rst author acknowledges …nancial support from ECO2008-02738/ECON.The second author acknowledges …nancial support from SEJ2007-66520/ECON.