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Price, Marginal Cost and the Business Cycle

  • Haskel, Jonathan
  • Martin, Christopher
  • Small, Ian

We estimate mark-ups of price over marginal cost for UK manufacturing, based on the approach of Hall (1988). We also extend his method to allow for varying mark-ups over industries and the cycle. Using data on 16 two-digit industries, 1968-89, we find: (1) the average mark-up in UK manufacturing is 2.00, (2) mark-ups are procyclical, (3) mark-ups are higher in more concentrated industries. Finding (2) is evidence against the macroeconomic theory that the transmission of demand shocks to employment works via counter-cyclical mark-ups. Finding (3) suggest a significant relation between mark-ups and market structure that has proved elusive in industrial economics studies that use profit rates to measure mark-ups. Copyright 1995 by Blackwell Publishing Ltd

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics & Statistics.

Volume (Year): 57 (1995)
Issue (Month): 1 (February)
Pages: 25-41

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Handle: RePEc:bla:obuest:v:57:y:1995:i:1:p:25-41
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