Comments on: Price-cost margins, fixed costs and excess profits over the business cycle by Yannick Bormans

Ambiguity about the cyclicality of PCM

• Two components that evolve in opposite directions

Estimates PCM in the presence of fixed costs.

Confirms it’s countercyclicality.

Proposes a vulnerability index to aim subsidies.

Good policy implications: better target government aid to industries in distress

Hot topic: rise in markups

References on ambiguity:

• Citing works that find pro and countercyclical PCM would lend credence to the claim of ambiguity.
• Aliaga and Olivero (2010) confirm countercyclicality of PCM for banks in the US.

Decomposition:

• PCM is estimated from equation (1) obtained in the appendix.
• \(\widehat{PCM}_{st}\equiv \widehat{FCR}_{st} + \widehat{EPR}_{st}\)

Table 1: definition of variables (TFA? LS? CS?)

Additional table would be helpful

• How many industries? 1285?
• Whats the source of the heterogeneity on table 1.
• Are the estimates obtained at industry level? As many regressions as industries?

Figure one seems like the PCM is clearly countercyclical. I don’t think that supports the idea that the cyclicality of PCM is ambiguous.

Sales pitch: COVID to global recession

Market structure:

• How does it influence results?
• Is the methodology robust to changes in market concentration across industries?
• Excess profit ratio: what does “excess” mean here?