The Levels and Cyclical Behaviour of Mark-Ups Across Countries and Market Structures
Organisation for Economic Co-operation & Development, Economics Department Working Paper No. 213
28 Pages Posted: 7 Oct 1999
Date Written: May 1999
In this paper, we present estimates of the mark-up of product price over marginal costs for the manufacturing industries of the US and the other G-5 countries. The paper extends the analysis used in previous studies based on nominal productivity residuals by considering intermediate inputs and cyclical fluctuations of price margins. The estimated steady-state mark-ups are positive but moderate, generally in the range of 10-20 per cent, although with significant country differences. The results also support the hypothesis of countercyclical price margins in most manufacturing industries, especially in the presence of downward rigidities of labour inputs. This offers an appealing interpretation for the procyclicality of real wages and enables to better estimate TFP. Finally, we investigate the role of market structures on the levels and cyclicality of mark-ups. The distinction between fragmented and segmented industries provides a relatively robust evidence that the price-setting behaviour is indeed related to the type of market structures.
JEL Classification: D24, D40, L60
Suggested Citation: Suggested Citation