Reexamining the De Loecker & Warzynski (2012) Method for Estimating Markups
31 Pages Posted: 14 May 2021
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: 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
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