Time Use and the Efficiency of Heterogeneous Markups
Abstract
What are the welfare implications of markup heterogeneity across firms? In standard monopolistic competition models, markup heterogeneity implies inefficiency even in the presence of free entry. We enrich the standard model so that preferences depend non-separably on off-market time and show how this changes the equilibrium and efficient distributions of productivity and markups. With constant elasticity of substitution across varieties, firm selection is inefficiently lax when off-market time and market goods are complements and inefficiently strict when they are substitutes. However, when off-market time and market goods are perfect complements, markups differ across firms and yet the equilibrium allocation is efficient.
Key Insight
Apparent markup distortions may be less harmful than standard analysis implies once time allocation is considered.
Keywords
- markups
- time allocation
- efficiency
- price theory
- welfare economics
Citation
Brian C. Albrecht, Thomas Phelan, and Nick Pretnar (2025). "Time Use and the Efficiency of Heterogeneous Markups."
BibTeX
@article{markups_time,
title = {Time Use and the Efficiency of Heterogeneous Markups},
author = {Brian C. Albrecht and Thomas Phelan and Nick Pretnar},
year = {2025},
url = {https://briancalbrecht.com/Albrecht_Phelan_Pretnar_Markups_Time.pdf}
}