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Reexamining the De Loecker & Warzynski (2012) method for estimating markups

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  • Jaumandreu, Jordi
  • Doraszelski, Ulrich

Abstract

De Loecker & Warzynski (2012) obtain the markup from the ï¬ rm’s cost minimization problem by substituting in estimates of the output elasticity of a variable input and the disturbance that separates actual from planned output. We show, however, that consistently estimating the output elasticity and the disturbance using the procedure developed in Olley & Pakes (1996) and Levinsohn & Petrin (2003) generally requires observing and controlling for the markup. We analyze the resulting biases and discuss alternative approaches to estimation.

Suggested Citation

  • Jaumandreu, Jordi & Doraszelski, Ulrich, 2021. "Reexamining the De Loecker & Warzynski (2012) method for estimating markups," CEPR Discussion Papers 16027, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16027
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