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Increased market access through trade liberalization can affect the markups, prices, and marginal costs of exporters. Understanding these dynamics is critical for firms and policymakers, particularly as they formulate export strategies. We examine the impact of China lowering tariffs on Pakistani products under the Pakistan–China Free Trade Agreement (FTA), which gave Pakistani exporters greater market access. Using disaggregated output and price data for textile manufacturers in Punjab, Pakistan, we estimate product-level markups and marginal costs using the methodology of De Loecker, Goldberg, Khandelwal, and Pavcnik (2016) ["Prices, Markups, and Trade Reform." Economterica 84 (2): 445–510]. We then extend this to the firm level by using the methodology of De Loecker and Warzynsksi (2012) ["Markups and Firm-Level Export Status." American Economic Review, 2437–2471]. We find that Pakistani firms exporting to China followed a dynamic pricing strategy by reducing prices to compete with global competitors in the Chinese market. We also find evidence of a decrease in marginal costs as a result of reductions in X-inefficiencies. But because Pakistan's exports to China are relatively homogeneous, the extent of quality differentiation and markup margins was limited. Finally, we find evidence of pro-competitive effects. [ABSTRACT FROM AUTHOR]

How much do students benefit from student loan subsidies? We investigate this question, exploiting a natural experiment: a demand shock due to the 2011 tightening of credit standards in the PLUS program. We first establish that the Bennett hypothesis is best explained by colleges charging large markups over their marginal costs, rather than by advantageous selection. Then we use our results to estimate that students plausibly capture less than 60 cents of each dollar of resources expended on loan subsidies. We discuss alternative approaches that would more directly benefit students. [ABSTRACT FROM AUTHOR]

Price markups and firms' Tobin's Q ratios are widely believed to have been increasing in the past several decades. Various models for the calculation of price markups have been developed, each relying on the historically held definition of the ratio of price to marginal cost; however, all of these have methodological drawbacks, and some of the results they have produced have been poorly reflective of the near past wider macroeconomic experience. This paper defines a new approach for the definition and measurement of markup pricing, and it also avoids some of the issues surrounding the marginal cost approaches by using the measure of economic rent and the capital asset pricing model. The results show limited markup pricing for the UK's FTSE 100 companies (2018–2023), but that certain real estate, technology/media and financial services/equity investment firms have enjoyed higher price markup levels. An analysis of the business models of these firms is used to qualitatively propose explanations for such markups. This work offers formal proof that that the expected price markup is equal to Tobin's Q and finds that the empiric market level of markup is near equivalent to the market Tobin's Q; the differences between the markup and Tobin's Q at the level of the firm are equally assessed. This work challenges the general consensus that price markups are above one and have been increasing; it may also aid policy makers with respect to taxation policy and regulatory measures, as well as the financial management of firms in decisions concerning capital deployment and portfolio management. The method merits expansion to wider data sets, as well as to those from outside of the UK. [ABSTRACT FROM AUTHOR]

This paper provides the evidence of a fall of markups of price over marginal costs in Poland over the period 2002–2016. Markups were calculated using a census of firms and the methodology proposed by De Loecker and Warzynski (2012; American Economic Review, 102(6)). The fall of markups is robust to several empirical identification strategies. Moreover, the decline of markups is not related to changes in a sectoral composition and firms demography and is most severe in exporting firms. Our empirical results relate the fall of markups to the globalisation and the emergence of the Global Value Chains. We show that an increasing reliance on imported components in production, together with a rising concentration of domestic firms on export markets are the main factors behind the observed compression of markups. We also document a hump‐shaped (U‐shaped) relationship between foreign value added in exports (distance from final demand) and markups. [ABSTRACT FROM AUTHOR]

The article investigate the possible reasons for the high inflation rate in the U.S. It explores the idea of "greedflation," which suggests that companies has been increasing prices to capitalize on their market power, without considering the cost of production. It further analyzes the growth of markup, the ratio of a firm's price to its current marginal cost of production, and its impact on inflation in 2021.

Markup cyclicality has been central for debating policy effectiveness and understanding business cycle fluctuations. However, measuring the cyclicality of markups is as important as understanding the microeconomic mechanisms underlying that cyclicality. The latter requires measurement of firm-level markups and separating supply from demand shocks. We construct a novel dataset with detailed (multi-) product-level prices for individual firms. By estimating a structural model of supply and demand, we evaluate how companies adjust prices and marginal costs as a response to shocks. We find that price markups respond positively to supply shocks and negatively to demand shocks. The mechanism explaining the observed markup behaviour is the same for both shocks: incomplete pass-through of changes along the marginal cost curve to price adjustments. These observed price and output responses are consistent with dynamic demand considerations. Finally, we use our estimated shocks to show how aggregate markup fluctuations in the sample period are mostly explained by aggregate demand shocks. [ABSTRACT FROM AUTHOR]

In The Great Reversal, Philippon makes the case that competition in America has weakened during the past two decades. His book contributes to the rapidly developing literature on the macroeconomic consequences of market power. I argue that Philippon fails to convincingly support his hypothesis because (1) he does not consider competition as a process operating on several margins, with the price being only of them, and (2) the available empirical data does not unambiguously show a rise in market power. Philippon's work suffers from similar flaws as the "structure-conduct-performance" paradigm. I also incorporate recent attempts to estimate aggregate market power and explain why the methods used for such estimations are calculated by making assumptions over which margins entrepreneurs compete and suffers from serious knowledge problems. Finally, I offer an alternative view of competition, which focuses on how and at what speed rents are being dissipated instead of the markup of price over marginal cost. [ABSTRACT FROM AUTHOR]

It has been shown that repeated myopic use of inverse elasticity pricing rule converges on the profit maximizing price only if demand is sufficiently convex, and that it will never converge for linear or strictly concave demands (Fjell and Pal 2019). By myopic, we mean ignoring that elasticity and marginal cost may vary with output and price. We explore a price adjustment process, where at each stage the new price is a convex combination of the current price and the myopic price that is dictated by the inverse elasticity pricing rule. We show that as long as sufficient weight is placed on the current price, the price sequence converges on the profit maximizing price for all demands. The precise range of potential convex combinations for convergence are determined; both for the traditional (multiplicative) version of the inverse elasticity pricing rule, as well as for the unfamiliar additive version. A comparison of the two shows that the latter appears superior in the sense that it converges for a larger range of convex combinations, and that it seems simpler and more intuitive in its expression. [ABSTRACT FROM AUTHOR]

Proving the excessiveness of the dominant firm's prices constitutes a challenging task for young competition authorities, due to the difficulties in confronting economic theories with facts and the lack of analytical tools to carry out robust investigations. To handle these issues, this paper proposes a statistical algorithm centred on the analysis of the prices and mark-up of the dominant firm. An empirical study involving the use of real industrial data is carried out to show the implementation of the proposed statistical algorithm. The results reveal that the excessiveness of the dominant firm's prices is due to the excessiveness of its mark-up over the total cost. Our findings also show that the pricing behaviour of the dominant firm remains unpredictable in the absence of a large amount of data for the analysis of demand patterns, a direct measurement of the marginal cost, and a good knowledge of market functioning. [ABSTRACT FROM AUTHOR]

There are many influencing factors in bidding quotations for overseas projects. Due to the lack of quotas or historical data, the rationality evaluation is very necessary. In this paper, we expounded the cost composition and influencing factors of the bid quotation for overseas projects, and summarized the evaluation methods and core review points of the direct cost and markup of overseas project bidding in combination with the bidding work practices. Then it is analyzed and explained by taking a highway project in Jamaica as an example, and it provides operational reference for Chinese enterprises to go global. [ABSTRACT FROM AUTHOR]

A countercyclical markup of price over marginal cost is a key transmission mechanism for demand shocks in New Keynesian (NK) models. This paper reexamines the foundation of those models by studying the cyclicality of the price‐cost markup in the private economy. We find that how the markup is measured matters for its unconditional cyclicality. Measures of the markup based on the inverse of the labor share are moderately procyclical, but are moderately countercyclical for some generalizations of the production function. NK models predict that the cyclicality of the markup should vary depending on the nature of the shock. Consistent with the NK model, we find that the markup is procyclical conditional on total factor productivity shocks and countercyclical conditional on investment‐specific technology shocks. In contrast, we find that the markup increases in response to a positive demand shock. Thus, the transmission mechanism for the effects of demand shocks in sticky‐price NK models is not consistent with the data. [ABSTRACT FROM AUTHOR]

We study the effect of exporting on markups building on two stylized facts: (1) exporters charge higher markups than nonexporters and (2) firms increase markups when they start to export. These facts suggest that exporting increases markups, but the causal relationship has not been studied directly. To do so, we modify Melitz and Ottaviano (2008) by adding decreasing returns technologies and demand and productivity shocks to account for sales correlations across markets. We calibrate and simulate a trade cost reduction. Old exporters increase markups on average, while new ones reduce them. Three mechanisms matter: (1) cost reductions are not fully passed on to prices, (2) firms expand, increasing marginal cost, and (3) foreign demand is more elastic than domestic demand. The first effect dominates along the intensive margin, while the others prevail along the extensive margin. Thus, exporters charge larger markups in spite of exporting, not because of it. [ABSTRACT FROM AUTHOR]

We use data from the last Ecuador Economic Census, covering the universe of manufacturing firms, to study the relationship between firms' R&D and workers' training investments and ICT use and firms' productivity and markups. These knowledge-related investments may affect productivity. Moreover, investments in both knowledge and productivity can affect the ability of firms to set prices above marginal costs. Whether R&D and workers' training investments and ICT are important for productivity and the capacity to set higher markups in developing countries are interesting development policy questions. We find that good business practices, including access to internal capital markets or to external finance, encourage R&D and workers' training investments, and ICT use. These investments affect positively firms' productivity and markups. Their influence on markups operates in general through efficiency and prices. Finally, there is evidence about demand conditions to boost knowledge-related investments and markups. [ABSTRACT FROM AUTHOR]

This paper investigates the pricing decisions across the manufacturing sectors of 19 EU countries over 1995–2014. The markup formulation of De Loecker and Warzynski (Am Econ Rev 102(6):2437–2471, 2012) is employed in order to estimate the price–cost margin of 10 2-digit NACE Rev.2 level manufacturing sectors and conclude whether the selling price of the final product exceeds the marginal cost of production. Subsequently, the pricing decisions of the constituent industries are tested with respect to (i) liquidity constraints, (ii) export orientation and (iii) the level of productivity when the factors of market regulation and industrial value are controlled for. A panel VAR framework is employed to take into account the presence of cross-section dependency and stationarity emerging in the panel sample. The findings suggest the presence of imperfect competitive conduct across every manufacturing industry through overpricing decisions. Moreover, higher markup ratios are charged by those sectors with access to credit, higher export orientation and higher levels of productivity. [ABSTRACT FROM AUTHOR]

Research suggests that if supply-side reforms take place as the nominal interest rate hits the so-called 'zero lower bound' (ZLB), the benefits of reforms are outweighed by the negatives, and the net effect is contractionary (Eggertsson et al. 2014 ; Fernandez-Villaverde 2014). In this article, we show that the effectiveness of temporary reforms that reduce price markups is determined by the interaction between two offsetting effects on the real interest rate: one deflationary and one inflationary. If the latter outweighs the former, the reforms can become expansionary. The effectiveness of permanent reforms is determined by the monetary policy outside the ZLB: a wealth effect. If the effect is large enough, the reforms can also become expansionary (JEL codes: E30, E50, E60). [ABSTRACT FROM AUTHOR]

The article presents an analysis of merchants' pricing mentality. The discrepancy between market determined prices and monopoly driven prices is discussed with respect to the theory of monopolistic competition. The pricing principle which corresponds to the theory of monopolistic competition is that marginal revenue and marginal cost will be the same. The greatest total profit can also reportedly be calculated by determining price from the average cost and average revenue curves. Merchants' most typical pricing policies use markup costing. Starting with the invoice price, merchants determine their price by combining their overhead and desired profit.

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This paper introduces right-to-manage bargaining into a labor search model with sticky prices instead of standard efficient bargaining and examines the Ramsey-optimal monetary policy. Without real wage rigidity, even when the steady state is inefficient, price stability is nearly optimal in response to technology or government shocks. Right-to-manage bargaining creates the wage channel to inflation, because there is a direct relationship between real wages and real marginal cost. In the presence of the wage channel, price markups consist of only real marginal cost, and real wages and hours per worker are determined such as in the Walrasian labor market. [ABSTRACT FROM AUTHOR]

This paper estimates the price–marginal cost markup for U.S. manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on the Hall (1988) framework that involves manipulating the Solow Residual. However, this paper argues that this notion is based on the unreasonable assumption that labor can be costlessly adjusted at a fixed wage rate. By relaxing this assumption we are able to derive a generalized markup index, which, when estimated using manufacturing data, is highly countercyclical and decreasing in trend since the 1960s. When we then seek to explain what causes the manufacturing markup to behave in this way, the most important determinant is the share of imported goods in the industry. Thus, increasing foreign competition in manufacturing has led to a decline in the industry's markup over time. [ABSTRACT FROM AUTHOR]

Many theoretical models assume that the markup of price over marginal costs is the same for all firms in a sector, irrespective of firm size, type, or efficiency. We analyze the distribution of markups for 70 Finnish sectors using a complete dataset, including both manufacturing and services sectors and firms of all sizes. In contrast to the constant markup hypothesis, we find (i) large differences in markups within sectors, (ii) higher markups for small firms and domestic firms, and (iii) greater markup heterogeneity in sectors with low capital-labour ratios and a large number of firms. [ABSTRACT FROM PUBLISHER]

Abstract: We show that recent developments in hedonic pricing theory allow modeling of the equilibrium pricing function as the marginal cost of an additional housing unit plus a markup that varies inversely with the elasticity of demand. Useful information about demand elasticity at a given point on the envelope function can be recovered from the hedonic regression and limited information on marginal costs. In particular, the elasticity of the envelope with respect to any characteristic such as interior area provides information on the elasticity of demand. Relative price elasticities (i.e., elasticities that vary from a base value in a known way with interior area, unit type or neighborhood characteristics) can be computed from the elasticity of the hedonic envelope. Like , our method is based on a single hedonic equation. We test our method using sales of new high rise condominiums in two districts within Shenzhen, China: Futian and Longgang. The results strongly confirm the main hypothesis of this paper: price elasticity with respect to size is increasing for more complex types of units. Together with estimates of marginal costs of production, these results imply that relative demand elasticity is declining for larger, more complex units. [Copyright &y& Elsevier]

Rotemberg's (1982) price adjustment costs framework is a popular sticky price specification; yet, the data provides little information on the magnitude of those costs. This article finds a plausible range of parameterizations for those price adjustment costs. Our results show that the specific size of the price adjustment costs depends on the average markup of price over real marginal cost and the average time firms wait to reoptimize their price. In particular, the price adjustment costs are higher when the average markup is lower and the mean time between price reoptimizations is longer. [ABSTRACT FROM AUTHOR]

We re-examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade-off between a larger versus a later net benefit; we show that this trade-off is closely analogous to the standard trade-off for the pricing decision of a firm that faces a downward sloping demand curve. We reinterpret the optimal investment rule as a markup formula involving an elasticity that has exactly the same form as the formula for a firm's optimal markup of price over marginal cost. This is illustrated with several examples. [ABSTRACT FROM AUTHOR]

Abstract--The relevance of imperfect competition for models of economic fluctuations has received increased attention from researchers in both macroeconomics and industrial organization. We outline a new methodology for estimating industry markups of price over marginal cost and the influence of market structure on cyclical movements in total factor productivity Measures of industry concentration, import competition, and unionization are important for explaining markups in some industry groups. Much of the estimated markup of price over marginal cost is accounted for by non-capital fixed costs. Finally, we show that our estimated margins fluctuate substantially over the cycle. In particular, there are substantial differences in cyclical fluctuations in margins in durable-goods and nondurable-goods manufacturing industries [ABSTRACT FROM AUTHOR]

The article comments on market structure and the markup ratio. The basic idea was that price is equal to marginal cost if there is perfect competition and constant markup ratio. A statistical model was developed to estimate the markup ratio. If the markup ratio estimated for an industry is unitary, then the null-hypothesis of competition is not rejected. If, however, it is greater than one, the alternative hypothesis of non-competition is not rejected. The theory mandates that monopoly power is dynamically constant despite a nonconstant productivity residual. This paper suggests an alternative method for estimating the efficiency of, or the role of market structure in, resource allocation, and tests the competitiveness of the U.S. industries. If markup ratio of price to marginal cost is a good measure of allocative efficiency, then the other alternative markup ratio of price to marginal revenue should yield the same conclusion since the profit-maximizing firm always equates marginal cost and marginal revenue. Thus, the new method is to estimate the alternative ratio of price to marginal revenue.

The Lerner relationship linking the profit-maximizing price to marginal cost and the elasticity of demand generalizes to the price-setting newsvendor, and the result resolves the puzzle over the different effects of additive and multiplicative uncertainty on the solution. Multiplicative uncertainty increases the optimal price because it increases the marginal cost of a unit sold and does not affect the markup factor. Additive uncertainty has no effect on the marginal cost of a unit sold and lowers the markup factor because it increases the elasticity of the average quantity sold with respect to price. [ABSTRACT FROM AUTHOR]

We examine the impact of flight delay on market power in the U.S. airline industry. Consistent with the literature, our estimation results confirm that flight delays are associated with negative consumer welfare effects. Most importantly, we find that poor on-time performance negatively impacts product markup—proxy for market power. Furthermore, we are able to decompose these markup effects into price and marginal cost effects and evidence suggests that the source of these negative markup effects is primarily driven by negative price responses. • This study examines the impact of flight delay on market power. • We find that flight delay negatively impacts airline market power. • We decompose the market power effects into price and marginal cost effects. • The source of these negative market power effects is primarily driven by negative price responses. [ABSTRACT FROM AUTHOR]

This section presents abstracts of several studies on economics. Julio J. Rotemberg and Michael Woodford examines the business cycle variation in the markup of price over marginal cost in the study Markups and Business Cycle. The paper Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots, by John Y. Campbell and Pierre Perron, is an introduction to unit root econometrics as applied in macroeconomics. The paper first discusses univariate time series analysis. A second part of the paper tackles issues in a multivariate context where cointegration is the central concept. Jean Tirole's Privatization in Eastern Europe: Incentives and the Economics of Transition discusses how incentives and market structure considerations ought to guide the choice of sequencing and institutions in the privatization of state industrial property in Eastern Europe.