Reexamining the De Loecker & Warzynski (2012) Method for Estimating Markups

31 Pages Posted: 14 May 2021

See all articles by Ulrich Doraszelski

Ulrich Doraszelski

University of Pennsylvania - The Wharton School

Jordi Jaumandreu

Boston University

Date Written: April 1, 2021

Abstract

De Loecker & Warzynski (2012) obtain the markup from the firm’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

Suggested Citation

Doraszelski, Ulrich and Jaumandreu, Jordi, Reexamining the De Loecker & Warzynski (2012) Method for Estimating Markups (April 1, 2021). CEPR Discussion Paper No. DP16027, Available at SSRN: https://ssrn.com/abstract=3846114

Ulrich Doraszelski (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Jordi Jaumandreu

Boston University ( email )

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