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Recovering markups from production data

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  • De Loecker, Jan

Abstract

In this paper, I discuss, what I call, the Production-Approach to recovering markups. In contrast to the most popular approach in empirical IO, which relies on demand estimation, this approach requires standard production data while allowing for various price-setting models and puts no restrictions on underlying consumer demand. Using production data together with standard cost minimization allows a researcher to obtain markups in a flexible way. After presenting a brief and selective overview of the literature I contrast the production approach to that of the more popular demand estimation approach. This discussion makes it clear that both approaches face important trade-offs and at a minimum empirical economist should have both techniques as part of their toolbox. The hope is that the use of both methods will only depend on the data at hand and the relevant institutional knowledge, paired with the actual research question we are trying to answer.

Suggested Citation

  • De Loecker, Jan, 2011. "Recovering markups from production data," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 350-355, May.
  • Handle: RePEc:eee:indorg:v:29:y:2011:i:3:p:350-355
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    References listed on IDEAS

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    2. Gautam Gowrisankaran & Marc Rysman, 2012. "Dynamics of Consumer Demand for New Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 120(6), pages 1173-1219.
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    Citations

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    Cited by:

    1. Carlo Altomonte & Tommaso Aquilante & Gábor Békés & Gianmarco I.P. Ottaviano, 2013. "Internationalization and innovation of firms: evidence and policy," Economic Policy, CEPR;CES;MSH, vol. 28(76), pages 663-700, October.
    2. Bruce A. Blonigen & Justin R. Pierce, 2016. "Evidence for the Effects of Mergers on Market Power and Efficiency," Finance and Economics Discussion Series 2016-082, Board of Governors of the Federal Reserve System (U.S.).
    3. John P. Weche & Achim Wambach, 2018. "The fall and rise of market power in Europe," Working Paper Series in Economics 379, University of Lüneburg, Institute of Economics.
    4. T. Libert, 2017. "Misallocation Before, During and After the Great Recession," Working papers 658, Banque de France.
    5. Opp, Marcus M. & Parlour, Christine A. & Walden, Johan, 2014. "Markup cycles, dynamic misallocation, and amplification," Journal of Economic Theory, Elsevier, vol. 154(C), pages 126-161.
    6. Jan De Loecker & Paul T. Scott, 2016. "Estimating market power Evidence from the US Brewing Industry," NBER Working Papers 22957, National Bureau of Economic Research, Inc.
    7. Paul Scott, 2017. "Estimating Market Power: Evidence from the US Brewing Industry," 2017 Meeting Papers 389, Society for Economic Dynamics.
    8. Ildikó Magyari, 2017. "Firm Reorganization, Chinese Imports, and US Manufacturing Employment," Working Papers 17-58, Center for Economic Studies, U.S. Census Bureau.
    9. Carlos Santos & Luis F. Costa & Paulo Brito, 2016. "Demand, Supply and Markup Fluctuations," FEUNL Working Paper Series wp609, Universidade Nova de Lisboa, Faculdade de Economia.
    10. repec:bla:ecinqu:v:55:y:2017:i:3:p:1175-1191 is not listed on IDEAS
    11. Mauro Caselli & Stefano Schiavo & Lionel Nesta, 2017. "Markups and markdowns," Documents de Travail de l'OFCE 2017-11, Observatoire Francais des Conjonctures Economiques (OFCE).
    12. JaeBin Ahn & Alexander McQuoid, 2013. "Capacity Constrained Exporters: Micro Evidence and Macro Implications," Working Papers 1301, Florida International University, Department of Economics.
    13. Michael L. Polemis & Aikaterina Oikonomou, 2016. "Does regulation affect market power? Evidence from Greek SMEs," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(4), pages 43-60, October-D.
    14. Jan De Loecker & Paul T. Scott, 2016. "Estimating market power Evidence from the US Brewing Industry," NBER Working Papers 22957, National Bureau of Economic Research, Inc.
    15. Joakim Gullstrand & Karin Olofsdotter & Susanna Thede, 2014. "Markups and export-pricing strategies," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(2), pages 221-239, May.
    16. Alexander F. McQuoid & JaeBin Ahn, 2015. "Capacity Constrained Exporters: Identifying Increasing Marginal Cost," Departmental Working Papers 49, United States Naval Academy Department of Economics.

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