Trade, Markup Heterogeneity And Misallocations

Markups vary widely across industries and countries, their heterogeneity has increased overtime and asymmetric exposure to international trade seems partly responsible for this phenomenon. In this paper, the authors study how the entire distribution of markups affects resource misallocation and welfare in a general equilibrium framework encompassing a large class of models with imperfect competition. They then identify conditions under which trade opening, by changing the distribution of markups, may reduce welfare. The approach is novel both in its generality and in the emphasis on the second moment of the markup distribution.