An increase in the aggregate markup can be due to both firm-level markups increasing and economic activity reallocating toward high-markup firms. I show that standard decomposition methods estimate a non-zero reallocation effect even when the allocation does not change and that this bias is...

A recent literature argues that the rise in aggregate markups is due to economic activity reallocating toward high-markup firms rather than an increase in firm-level markups. I show that this result is biased by three types of measurement error. First, standard decomposition methods estimate a...

A rise in the aggregate markup can be decomposed into an effect coming from changes in firm-level markups and an effect coming from reallocation of economic activity toward high-markup firms. I show that such a decomposition is heavily influenced by measurement error of firm-level markups. When...