On Endogenous Markups Distribution and the Pecuniary Externality of Credit on Monetary Exchange
Speaker: Associate Professor Timothy Kam
Affiliation: Australian National University
Location: Room S402, Social Sciences Building (#24), UQ St Lucia Campus
Abstract
We show that competitive banking amplifies retail goods firms' ability to extract higher markups from ex-post heterogeneous buyers. This works through a new pecuniary-externality channel that is tightly connected to an equilibrium distribution of retail goods price markups. Our model generates a positive relationship between the consumer credit-to-GDP ratio and retail price markups (and their dispersion). This prediction is consistent with empirical evidence using firm-level data in the United States. The endogeneity in firms' markup responses to the presence of credit renders competitive banking not always and everywhere a welfare-enhancing proposition. Consequently, the welfare-improving role of banking liquidity transformation is ambiguous. Our model also justifies why policymakers should be worried about rising industry markups.
About the presenters meeting
If you would like to meet with A/Prof Kam, contact: Prof Begona Dominguez.
About School Seminar Series
The School of Economics General Seminar Series is held on Fridays. These are in-person and presented by a range of guest researchers from around Australia and internationally.