Interpreting Markups in Spanish Manufacturing: The Exponential Model

Abstract

In this paper we attempt to rationalize markups in a sample of Spanish manufacturing by assuming a representative consumer, proft-maximizing firms and constant returns to scale. We find that the standard forms of demand (CES and linear) do not provide a good explanation of markups. In contrast, a model where the representative consumer has an exponential utility function yields results that match data more closely.