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    Dangerous shortcuts: Ignoring marginal cost determinants in markup estimation

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    Date Issued
    2018-06
    Author(s)
    Jaumandreu, Jordi
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    Permanent Link
    https://hdl.handle.net/2144/39033
    Version
    First author draft
    Citation (published version)
    Jordi Jaumandreu. "Dangerous Shortcuts: Ignoring Marginal Cost Determinants in Markup Estimation."
    Abstract
    De Loecker and Warzynski (2012) proposed a way to estimate markups under imperfect competition from firm-level data. The basic idea is first to estimate the elasticity of output with respect to a variable factor of production, and then divide this elasticity by the share of the input expenditure in the relevant sales. This note argues that this way to estimate markups is affected by a problem of circularity: under imperfect competition, to estimate the elasticity of an input you need to know, or estimate at the same time, the markups. The application of the proposal, ignoring this fact, is likely to produce inconsistent estimates and generate large biases in inferences about markups.
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    • CAS: Economics: Scholarly Papers [187]
    • BU Open Access Articles [3664]


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