TY  - JOUR
AU  - Chevalier,Judith A.
AU  - Scharfstein,David S.
TI  - Capital Market Imperfections and Countercyclical Markups: Theory and    Evidence
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4614
PY  - 1994
Y2  - January 1994
UR  - http://www.nber.org/papers/w4614
L1  - http://www.nber.org/papers/w4614.pdf
N1  - Author contact info:
Judith A. Chevalier
Yale School of Management
135 Prospect Street
New Haven, CT  06520
Tel: 203/432-3122
Fax: NA
E-Mail: judith.chevalier@yale.edu

David S. Scharfstein
Harvard Business School
Baker 239
Soldiers Field
Boston, MA 02163
Tel: 617/496-5067
Fax: 617/496-8443
E-Mail: dscharfstein@hbs.edu
AB  - During recessions, output prices tend to rise relative to wages and raw-materials prices.  One explanation of this fact is that imperfectly competitive firms compete less aggressively during recessions - that is, markups of price over marginal cost are countercyclical.  We present a model in which markups are countercyclical because of capital-market imperfections.  During recessions, liquidity-constrained firms try to boost short-run profits by raising prices to cut their investments in market share.  We provide evidence from the supermarket industry in support of this theory.  We show that during regional and macroeconomic recessions, the most financially constrained supermarket chains tend to raise their prices relative to less financially constrained chains.
ER  -