DP16027 Reexamining the De Loecker & Warzynski (2012) method for estimating markups
|Author(s):||Ulrich Doraszelski, Jordi Jaumandreu|
|Publication Date:||April 2021|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=16027|
De Loecker & Warzynski (2012) obtain the markup from the ï¬?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.