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Estimating market power Evidence from the US Brewing Industry

Jan De Loecker and Paul T. Scott

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: While inferring markups from demand data is common practice, estimation relies on difficult-to-test assumptions, including a specific model of how firms compete. Alternatively, markups can be inferred from production data, again relying on a set of difficult-to-test assumptions, but a wholly different set, including the assumption that firms minimize costs using a variable input. Relying on data from the US brewing industry, we directly compare markup estimates from the two approaches. After implementing each approach for a broad set of assumptions and specifications, we find that both approaches provide similar and plausible markup estimates in most cases. The results illustrate how using the two strategies together can allow researchers to evaluate structural models and identify problematic assumptions.

Keywords: Markups; Demand systems; Production Functions; Conduct (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com
Date: 2017-01
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https://www2.census.gov/ces/wp/2017/CES-WP-17-06R.pdf Revised version, 2019 (application/pdf)
https://www2.census.gov/ces/wp/2017/CES-WP-17-06.pdf First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:17-06

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