Can We Believe Anything About Markups?

Conventional markup estimation using firm-level data on costs and outputs relies upon the assumption that firms within the same industry share a technology. A recent paper shows that there actually exists considerable heterogeneity in the production functions of firms, and that the conventional methods overstate the markups by orders of magnitude. This is an existential threat to an entire line of literature, as I explain.

https://nicholasdecker.substack.com/p/can-we-believe-anything-about-markups