ESTIMATING MARKUPS FROM PLANT-LEVEL DATA

Sergio Aquino de Souza

Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33rd Brazilian Economics Meeting] from ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics]

Abstract: This paper investigates the consequences of ignoring price heterogeneity on the estimation of markups using micro-data. I show that ignoring output price heterogeneity yields markup estimates severely biased towards one regardless of competitiveness levels. To do so, I set up an econometric model that assumes monopolistic competition and a CES demand function in a differentiated product market. This model controls for unobserved price heterogeneity and is easy to estimate since OLS is applicable. Using data from Colombian plants, the differentiated product model reveals markup estimates considerably higher than one, rejecting the hypothesis of competitive markets.

JEL-codes: D21 D24 L11 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-com and nep-mic
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