Mazumder, Sandeep (2009): The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing.
Download (455kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing|
|Keywords:||Markup; Marginal Cost|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
D - Microeconomics > D4 - Market Structure and Pricing > D40 - General
D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
|Depositing User:||Sandeep Mazumder|
|Date Deposited:||11. Sep 2009 20:51|
|Last Modified:||12. Feb 2013 01:22|
Bils, M., 1987. ``The cyclical behavior of marginal cost and price." American Economic Review 77, 838-855.
Bresnahan, T.F., 1989. ``Empirical studies of industries with market power." in Schmalensee, R., Willing, R. (Ed.), Handbook of Industrial Organization, 1011-1057. Elsevier.
Caballero, R.J., Lyons, R.K., 1992. ``External effects in U.S. procyclical productivity." Journal of Monetary Economics 29, 209-225.
Domowitz, I., Hubbard, R.G., Petersen, B.C., 1988. ``Market structure and cyclical fluctuations in U.S. manufacturing." Review of Economics and Statistics 70, 55-66.
Eden, B., Griliches, Z., 1993. ``Productivity, market power, and capacity utilization when spot markets are complete." American Economic Review 83, 219-223.
Galeotti, M., Schiantarelli, F., 1991. ``Variable markups in a model with adjustment costs: econometric evidence for U.S. industry." C.V. Starr Center for Applied Economics Working Paper 91-44.
Hall, R.E., 1986. ``Market structure and macro fluctuations." Brookings Papers on Economic Activity 2, 285-322.
Hall, R.E., 1988. ``The relation between price and marginal cost in U.S. industry." Journal of Political Economy 96, 921-947.
Hylleberg, S., Joergensen, R.W. 1998. ``A note on the estimation of markup pricing in manufacturing." University of Aarhus, School of Economics and Management, Economics Working Paper 6.
Lettau, M., Ludvigson, S., 2001. ``Consumption, aggregate wealth, and expected stock returns." Journal of Finance 56, 815-849.
Lewis, H.G., 1969. ``Employer interests in employee hours of worked." Cuadernos de Economia 18, 38-54.
Marchetti, D.J., 2002. ``Markup and the business Cycle: evidence from Italian manufacturing branches." Open Economies Review 13, 87-103.
Mazumder, S., 2009. ``The New Keynesian Phillips Curve and the Cyclicality of Marginal Cost." Forthcoming.
Oi, W., 1962., ``Labor as a quasi-fixed factor." Journal of Political Economy 70, 538-555.
Roeger, W., 1995. ``Can imperfect competition explain the difference between primal and dual productivity measures? Estimates for U.S. manufacturing." Journal of Political Economy 103, 316-330.
Rotemberg, J.,J., Woodford, M., 1990. ``Cyclical markups: theories and evidence." NBER Working Paper 3534.
Rotemberg, J.J., Woodford, M., 1999. ``The cyclical behavior of prices and costs." in Taylor, J.B., Woodford, M. (Ed.), The Handbook of Macroeconomics, edition 1, volume 1, pp. 1051-1135. Amsterdam: North-Holland.
Sembenelli, A., Siotis, G., 2005. ``Foreign direct investment, competitive pressure and spillovers. An empirical analysis of Spanish firm level data." CEPR Discussion Papers 4903.
Shapiro, M.D., 1987. ``Measuring market power in U.S. industry." Cowles Foundation Discussion Paper 828.
Stock, J.H., 1987. ``Asymptotic properties of least squares estimators of cointegrating vectors." Econometrica 55, 1035-1056.
Stock, J.H., Watson, M.W., 1993. ``A simple estimator of cointegrating vectors in higher order integrated systems." Econometrica 61, 783-820.
Waldmann, R.J., 1991. ``Implausible results or implausbile data? Anomalies in the construction of value-added data and implications for estimates of price-marginal cost markups." Journal of Political Economy 99, 1315-1328.