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Title: Reexamining the De Loecker & Warzynski (2012) method for estimating markups

Author(s): Ulrich Doraszelski and Jordi Jaumandreu

Publication Date: April 2021


Programme Area(s): Industrial Organization

Abstract: De Loecker & Warzynski (2012) obtain the markup from the ?rm's cost minimization problem by substituting in estimates of the output elasticity of a variable input and the disturbance that separates actual from planned output. We show, however, that consistently estimating the output elasticity and the disturbance using the procedure developed in Olley & Pakes (1996) and Levinsohn & Petrin (2003) generally requires observing and controlling for the markup. We analyze the resulting biases and discuss alternative approaches to estimation.

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Bibliographic Reference

Doraszelski, U and Jaumandreu, J. 2021. 'Reexamining the De Loecker & Warzynski (2012) method for estimating markups'. London, Centre for Economic Policy Research.