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The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing


  • Mazumder, Sandeep


This paper estimates the price-marginal cost markup for US manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on Hall's (1988) framework involving the manipulation of the Solow Residual. However this paper argues that this notion is based on the unreasonable assumption that labor can be costlessly adjusted at a fixed wage rate. By relaxing this assumption, we are able to derive a generalized markup index, which when estimated using manufacturing data is highly countercyclical and decreasing in trend since the 1960s. When we then seek to explain what causes the manufacturing markup to behave in this way, the most important determinant is the share of imported goods in the industry. Thus, increasing foreign competition in manufacturing has led to a decline in the industry's markup over time.

Suggested Citation

  • Mazumder, Sandeep, 2009. "The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing," MPRA Paper 17260, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:17260

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    References listed on IDEAS

    1. Winfried G. Hallerbach, 1999. "Decomposing Portfolio Value-at-Risk: A General Analysis," Tinbergen Institute Discussion Papers 99-034/2, Tinbergen Institute.
    2. Gourieroux, C. & Laurent, J. P. & Scaillet, O., 2000. "Sensitivity analysis of Values at Risk," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 225-245, November.
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    Cited by:

    1. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0245-4 is not listed on IDEAS
    2. Sandeep Mazumder, 2011. "The Long-Run Relationship Between Inflation and the Markup in the U.S," Economics Bulletin, AccessEcon, vol. 31(1), pages 473-484.

    More about this item


    Markup; Marginal Cost;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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