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Estimating Markups From Plant-Level Data

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Author Info
Sergio Aquino de Souza
Abstract

This paper investigates the consequences of ignoring price heterogeneity on the estimation of markups using micro-data. I show that ignoring output price heterogeneity yields markup estimates severely biased towards one regardless of competitiveness levels. To do so, I set up an econometric model that assumes monopolistic competition and a CES demand function in a differentiated product market. This model controls for unobserved price heterogeneity and is easy to estimate since OLS is applicable. Using data from Colombian plants, the differentiated product model reveals markup estimates considerably higher than one, rejecting the hypothesis of competitive markets.

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Paper provided by ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics] in its series Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] with number 098.

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Date of creation: 2005
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Handle: RePEc:anp:en2005:098

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Find related papers by JEL classification:
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity

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