Working Paper: NBER ID: w2941
Authors: Catherine J. Morrison
Abstract: In this paper I provide a production theory-based framework for measuring markups of price over marginal coat, and the effects of cost and demand characteristics on these markups. Price to marginal coat ratios are measured for various Canadian manufacturing industries, and the impacts of capacity utilization, scale economies, changing prices of variable inputs, import competition, unemployment and other cost and demand determinants are evaluated using adjusted markup indexes and elasticities of the markup ratios. The measured price margins are within a reasonable range and tend to be countercyclical. Moreover, these measures suggest that profitability stemming from the potential to increase price over marginal cost appears primarily to arise from cost characteristics determining scale economies.
Keywords: markup behavior; marginal cost; manufacturing; production theory
JEL Codes: L11; L60; D24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capacity utilization (E23) | markups (D43) |
| scale economies (F12) | markups (D43) |
| cost characteristics (D24) | markups (D43) |
| variable input prices (P22) | markups (D43) |
| import competition (L13) | markups (D43) |
| unemployment rates (J64) | markups (D43) |
| economic downturns (F44) | markups (D43) |
| economic booms (E32) | markups (D43) |