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The Hitchhiker’s Guide to Markup Estimation

Author

Listed:
  • Maarten De Ridder
  • Basile Grassi
  • Giovanni Morzenti

Abstract

Macroeconomic outcomes depend on the distribution of markups across firms and over time, making firm-level markup estimates key for macroeconomic analysis. Methods to obtain these estimates require data on the prices that firms charge. Firm-level data with wide coverage, however, primarily comes from financial statements, which lack information on prices. We use an analytical framework to show that trends in markups or the dispersion of markups across firms can still be well-measured with such data. Finding the average level of the markup does require pricing data, and we propose a consistent estimator for such settings. We validate the analytical results with simulations of a quantitative macroeconomic model and firm-level administrative production and pricing data. Our analysis supports the use of financial data to measure trends in aggregate markups. Keywords: Macroeconomics, Production Functions, Markups, Competition

Suggested Citation

  • Maarten De Ridder & Basile Grassi & Giovanni Morzenti, 2021. "The Hitchhiker’s Guide to Markup Estimation," Working Papers 677, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:677
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    Cited by:

    1. Geoffrey Barrows & Hélène Ollivier & Ariell Reshef, 2023. "Production Function Estimation with Multi-Destination Firms," CESifo Working Paper Series 10716, CESifo.
    2. Ziran Ding & Jose Garcia‐Louzao & Valentin Jouvanceau, 2025. "The dynamics of product and labour market power: Evidence from Lithuania," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 33(1), pages 165-194, January.
    3. Axelle Arquié & Malte Thie, 2023. "Energy, Inflation and Market Power: Excess Pass-Through in France," Working Papers 2023-16, CEPII research center.
    4. Rodríguez-Castelán, Carlos & López-Calva, Luis Felipe & Barriga-Cabanillas, Oscar, 2023. "Market concentration, trade exposure, and firm productivity in developing countries: Evidence from Mexico," World Development, Elsevier, vol. 165(C).
    5. David Van Dijcke, 2022. "On the Non-Identification of Revenue Production Functions," Papers 2212.04620, arXiv.org, revised May 2024.
    6. Paul S. Koh, 2025. "Merger Analysis with Unobserved Prices," Working papers 2025rwp-263, Yonsei University, Yonsei Economics Research Institute.
    7. Hensel, Jannik & Mangiante, Giacomo & Moretti, Luca, 2024. "Carbon pricing and inflation expectations: Evidence from France," Journal of Monetary Economics, Elsevier, vol. 147(C).
    8. Miller, Nathan H., 2025. "Industrial organization and The Rise of Market Power," International Journal of Industrial Organization, Elsevier, vol. 98(C).
    9. Giuseppe Berlingieri & Maarten De Ridder & Danial Lashkari & Davide Rigo, 2025. "Creative destruction through innovation bursts," CEP Discussion Papers dp2095, Centre for Economic Performance, LSE.
    10. Mertens, Matthias & Mottironi, Bernardo, 2023. "Do larger firms exert more market power? Markups and markdowns along the size distribution," LSE Research Online Documents on Economics 121283, London School of Economics and Political Science, LSE Library.
    11. Siying Ding & Ahmad Lashkaripour & Volodymyr Lugovskyy, 2024. "A Global Perspective on the Incidence of Monopoly Distortions," CESifo Working Paper Series 11211, CESifo.
    12. Eren Gürer & Pınar Derin Güre, 2024. "Evolution of Markups in the Manufacturing Industry of Turkiye," ERC Working Papers 2401, ERC - Economic Research Center, Middle East Technical University, revised Mar 2024.
    13. Shuichiro Nishioka & Mari Tanaka, 2022. "The Scope of Variable Inputs and Markup Estimates," Working Papers 23-01, Department of Economics, West Virginia University.
    14. Bajgar, Matej & Criscuolo, Chiara & Timmis, Jonathan, 2025. "Intangibles and industry concentration: a cross-country analysis," LSE Research Online Documents on Economics 126673, London School of Economics and Political Science, LSE Library.
    15. Romain Duval & Davide Furceri & Raphaël Lee & Marina M. Tavares, 2024. "Market power and monetary policy transmission," Economica, London School of Economics and Political Science, vol. 91(362), pages 669-700, April.
    16. Klaus Adam & Tobias Renkin & Gabriel Züllig, 2025. "Markups and Marginal Costs Over the Firm Life: Implications for the Optimal Inflation Target," CRC TR 224 Discussion Paper Series crctr224_2025_626, University of Bonn and University of Mannheim, Germany.
    17. Christian Reiner & Christian Bellak, 2023. "Hat die ökonomische Macht von Unternehmen in Österreich zugenommen? Teil 2," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 49(2), pages 17-76.
    18. Thomas Hasenzagl & Luis Perez, 2023. "The Micro-Aggregated Profit Share," Papers 2309.12945, arXiv.org, revised Nov 2023.
    19. Ricardo Marto, 2023. "Structural Change and the Rise in Markups," Working Papers 2024-002, Federal Reserve Bank of St. Louis.
    20. Yannick Bormans & Angelos Theodorakopoulos, 2023. "Productivity dispersion, wage dispersion and superstar firms," Economica, London School of Economics and Political Science, vol. 90(360), pages 1145-1172, October.
    21. Kouvavas, Omiros & Osbat, Chiara & Reinelt, Timo & Vansteenkiste, Isabel, 2021. "Markups and inflation cyclicality in the euro area," Working Paper Series 2617, European Central Bank.

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