Joint identification of monopoly and monopsony power

Michał Gradzewicz

No 2020-051, KAE Working Papers from Warsaw School of Economics, Collegium of Economic Analysis

Abstract: The article presents a generalization of an identification scheme of a monopolistic markup proposed by De Loecker and Warzynski (2012). We showed the relation between a price markup and factor wedges arising either due to firm's monopsony power and/or factor adjustment costs. The joint estimation of both kind of wedges (or price markup only) is subject to an identification problem and we discussed the possible restrictions identifying all wedges jointly. We argue that the identification restriction implicitly imposed in the empirical literature is reasonable, but in specific circumstances (or with additional information introduced) different choices may lead to better estimates of not only price markups, but also factor wedges if available data allow to measure multiple variable production factors.

Keywords: markup; wedge; monopsony power; identification (search for similar items in EconPapers)
JEL-codes: E31 E52 J11 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2020-06
New Economics Papers: this item is included in nep-com and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:sgh:kaewps:2020051

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