Abstract

This paper measures price-cost margins (PCM) at firm level by using balance sheet data. These measures, once aggregated at industry level, provide values close to the ones obtained through the estimation method proposed by Roeger (1995). The advantage of a firm-level measure is that it allows to decompose aggregate PCM dynamics into five components: a within effect (which is the change attributable to the pricing behavior of the incumbents given their market share), a reallocation effect (which accounts for the redistribution of market shares among incumbents, keeping the PCM constant), the interaction effect (which gives information about the underlying market dynamics) and entry and exit effects. Using data for Italy for the period 2000-2007 in 30 sectors (defined at NACE 3-digit level) we find some contrasting evidence for PCMs in manufacturing industries, while we observe a clear upward trend for PCMs in services.