The Convergence of Price–cost Margins

This paper provides estimates of sectoral price–cost margin (PCM) trends in thirteen OECD countries over the last three decades, once controlled for inflation and cycle effects. It concludes with the absence of a decrease in average PCM. More strikingly, it establishes a clear pattern of PCM convergence both across countries and sectors. This convergence means that high margins have shrunk and low margins grown. Better capital market efficiency might be a driving force in the PCM convergence. These results point to a need to search for factors countervailing the pro-competitive effect on markups.