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The upward bias of markups estimated from the price-based methodology

Author

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  • Hervé Boulhol

    (TEAM - Théories et Applications en Microéconomie et Macroéconomie - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IXIS-CIB - Corporate Investment Bank)

Abstract

Previous studies have emphasized that Roeger's methodology generates too high markups. This feature is confirmed on the basis of the unrealistically low capital shares implied by the estimates herein. Theoretically, it is shown that the normalization choice, the slow adjustment of capital and the mismeasurement of capital expenditures, each produces an upward bias. For instance, the price-based estimated markup is in fact the markup adjusted for returns to scale on the variable inputs only. Based on the empirical analysis, each of these sources of overestimation is very likely to play a role.

Suggested Citation

  • Hervé Boulhol, 2005. "The upward bias of markups estimated from the price-based methodology," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00195883, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00195883
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00195883
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    Cited by:

    1. Danny Leung, 2008. "Markups in Canada: Have They Changed and Why?," Staff Working Papers 08-7, Bank of Canada.

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