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Estimating Markups From Plant-Level Data

  • Sergio Aquino de Souza
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    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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    File URL: http://www.anpec.org.br/encontro2005/artigos/A05A098.pdf
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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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