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Markups in U.S. and Japanese Manufacturing: A Short Run Econometric Analysis

  • Catherine J. Morrison

In this paper a production theory-based model of firms' markup behavior is constructed. The theoretical structure is based on variants of generalized Leontief cost and expenditure functions. This structure yields a full specification of behavior from which the impacts of both supply and demand shocks on firms' markup behavior can be assessed through elasticities. Adjustment costs on both labor and capital and economies of scale are incorporated. Estimation is carried out using manufacturing data for the U.S. and Japan from 1960 through 1981. The empirical results suggest that markups for manufacturing firms in the U.S. and Japan have increased over time, but tend to be procyclical in the U.S. and countercyclical in Japan. This difference stems primarily from differential investment behavior. In addition, capacity utilization and especially returns to scale tend to counteract the short run profit potential from markup behavior, so that markups measured assuming constant returns may be biased downward. Finally, both supply and demand shocks appear to have a significant systematic impact on markups.

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File URL: http://www.nber.org/papers/w2799.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2799.

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Date of creation: Dec 1988
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Publication status: published as Morrison, Catherine J. "Markups In U.S. And Japanese Manufacturing: A Short-Run Econometric Analysis," Journal of Business and Economic Statistics, 1992, v10(1), 51-64.
Handle: RePEc:nbr:nberwo:2799
Note: EFG PR
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  1. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
  2. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
  3. Appelbaum, Elie, 1979. "Testing price taking behavior," Journal of Econometrics, Elsevier, vol. 9(3), pages 283-294, February.
  4. Morrison, Catherine J, 1985. "Primal and Dual Capacity Utilization: An Application to Productivity Measurement in the U.S. Automobile Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 312-24, October.
  5. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-45, December.
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