Appendix B: Robustness | RDP 2025-05: How Costly are Mark-ups in Australia? The Effect of Declining Competition on Misallocation and Productivity

RDP 2025-05: How Costly are Mark-ups in Australia? The Effect of Declining Competition on Misallocation and Productivity Appendix B: Robustness

Jonathan Hambur and Owen Freestone

August 2025

Table B1: Model Calibration Targets
Smaller sample model
	Mark-up		Concentration^(a) Top 5 per cent share	Superelasticity
	Harmonic sales-weighted	Cost-weighted	Concentration^(a) Top 5 per cent share	Superelasticity
Mid-2000s	1.37	1.59	68 per cent	0.13
Mid-2010s	1.25	1.46	70 per cent	0.13
Notes: Smaller model using only firms feeding into superelasticity calculation. (a) Concentration based on unweighted average of industry-level shares. Sources: Authors' calculations; Hambur (2023).

Table B2: Model Parameters
Smaller sample model
	Harmonic sales-weighted		Cost-weighted
	Pareto tail $ξ$	Demand elasticity $σ$	Pareto tail $ξ$	Demand elasticity $σ$
Mid-2000s	2.706	5.493	2.121	4.697
Mid-2010s	2.184	4.884	2.000	4.577
Note: Smaller sample model using only firms feeding into superelasticity calculation.

Table B3: Productivity Cost of Mark-ups
Smaller sample model
	Harmonic sales-weighted mark-up			Cost-weighted mark-up
	Gross output	Value added	Value added (no input)	Gross output	Value added	Value added (no input)
Mid-2000s – %	2.64	12.17	5.73	3.67	18.91	8.23
Mid-2010s – %	3.53	17.93	7.90	3.98	21.09	9.02
Change – ppt	0.89	2.72	0.51	0.32	2.18	0.80
Notes: Shows percentage loss in productivity relative to the efficient static planner's problem allocation. Smaller sample model using only firms feeding into superelasticity calculation.

Table B4: Model Calibration Targets
Time-varying superelasticity model
	Mark-up		Concentration^(a) Top 5 per cent share	Superelasticity
	Harmonic sales-weighted	Cost-weighted	Concentration^(a) Top 5 per cent share	Superelasticity
Mid-2000s	1.37	1.59	68 per cent	0.11
Mid-2010s	1.25	1.46	70 per cent	0.09
Note: (a) Concentration based on unweighted average of industry-level shares. Sources: Authors' calculations; Hambur (2023).

Table B6: Productivity Cost of Mark-ups
Time-varying superelasticity model
	Harmonic sales-weighted mark-up			Cost-weighted mark-up
	Gross output	Value added	Value added (no input)	Gross output	Value added	Value added (no input)
Mid-2000s – %	0.85	3.17	1.72	1.29	5.59	2.69
Mid-2010s – %	1.02	4.98	2.14	1.49	8.31	3.20
Change – ppt	0.17	1.81	0.42	0.20	2.72	0.51
Note: Shows percentage loss in productivity relative to the efficient static planner's problem allocation.

Table B7: Model Parameters
Division-level model
	Mid-2000s		Mid-2010s
	Pareto tail $ξ$	Demand elasticity $σ$	Pareto tail $ξ$	Demand elasticity $σ$
Agriculture, forestry & fishing	na	na	na	na
Mining	1.03	13.27	1.06	16.26
Manufacturing	4.95	9.39	3.18	6.63
Electricity, gas, water & waste services	5.85	7.18	5.75	7.69
Construction	na	na	na	na
Wholesale trade	4.00	10.73	3.35	9.64
Retail trade	na	na	na	na
Accommodation & food services	na	na	na	na
Transport, postal & warehousing	5.41	7.37	5.35	7.27
Rental, hiring & real estate services	2.80	4.99	2.95	5.19
Professional, scientific & technical services	7.63	10.63	5.37	8.33
Administrative & support services	6.78	8.30	6.70	8.63
Arts & recreation services	4.24	8.78	2.05	5.25
Other services	na	na	na	na

Table B8: Productivity Cost of Mark-ups Change
Division-level model
	Mid-2000s			Mid-2010s
	Gross output	Value added	Value added (no input)	Gross output	Value added	Value added (no input)
Agriculture, forestry & fishing	na	na	na	na	na	na
Mining	14.90	64.61	32.44	14.14	60.83	30.72
Manufacturing	1.39	18.96	6.07	2.37	51.65	11.92
Electricity, gas, water & waste services	na	na	na	na	na	na
Construction	na	na	na	na	na	na
Wholesale trade	2.86	9.97	6.43	3.53	13.20	8.08
Retail trade	na	na	na	na	na	na
Accommodation & food services	na	na	na	na	na	na
Transport, postal & warehousing	na	na	na	na	na	na
Rental, hiring & real estate services	1.70	14.02	4.33	1.58	12.62	4.00
Professional, scientific & technical services	0.47	2.02	1.01	0.78	3.71	1.70
Administrative & support services	na	na	na	na	na	na
Arts & recreation services	2.08	12.73	6.13	5.16	52.63	17.68
Other services	na	na	na	na	na	na
Note: Shows percentage loss in productivity relative to the efficient static planner's problem allocation.

Table B9: Economic Costs of Mark-ups Decomposition
Baseline model
	Output	Consumption	Hours	Welfare
Gains from moving to first-best
Mid-2000s – %	82	61	23	35
Mid-2010s – %	141	106	31	61
Gains from uniform subsidy (remove deadweight loss)
Mid-2000s – %	73	50	21	27
Mid-2010s – %	122	86	29	48
Notes: Show percentage total gain from moving from one equilibrium to another (i.e. ignores transition dynamics). Mark-ups are harmonic sales-weighted.