The Scope of Variable Inputs and Markup Estimates

Shuichiro Nishioka and Mari Tanaka
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Shuichiro Nishioka: West Virginia University, Department of Economics

No 23-01, Working Papers from Department of Economics, West Virginia University

Abstract: This paper builds an empirically tractable framework for the analysis of marginal costs in markup estimates from the production approach and examines how markups differ by the scope of variable inputs. Using plant-product matched data from Japan, we show that changes in markups can capture price and marginal cost dynamics, irrespective of the scope of variable inputs. Markups, however, are negatively and conditionally correlated with real output when only the most flexible intermediate inputs are selected as variable inputs. We find that the properties of markups depend on how variable inputs are selected and how underlying marginal costs are specified.

Keywords: Markups; Variable inputs; Marginal costs; Plant-product matched data; Japanese manufacturing (search for similar items in EconPapers)
JEL-codes: D22 D24 L11 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022-04
New Economics Papers: this item is included in nep-com and nep-eff
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