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...

Capital costs are not directly observed since most firms own part of their capital stock. I show how cross-sectional variation in firms' input choices reveals the user cost of capital. Estimating the model using Compustat data, I find that capital costs as a share of output have been declining....

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...