[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-664110-105":3,"detail-sidebar-cat-0-en-105":79,"doc-detail-664110-en":129},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":72,"head_meta":74,"extra_data":76,"updated_unix":78},105,"en","micro-and-macro-perspectives-on-production-based-markups","Micro and Macro Perspectives on Production-Based Markups","","We review the production approach for estimating markups, defined as the ratio of price to marginal cost. The approach is scalable because it avoids specifying consumer demand or market structure and can be applied across firms, industries, and time. The key insight is that production-based markups are a residual, analogous to the Solow residual, but vulnerable to misspecification and mismeasurement. This perspective clarifies why identical data can yield divergent results and why markups may rise in some cases but not in others, emphasizing the need to measure market power transparently and to distinguish markup variation from technology.",{"@graph":14,"@context":71},[15,34,54],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & Report",3,{"item":32,"name":10,"@type":21,"position":33},"https://docshare.wps.com/document/micro-and-macro-perspectives-on-production-based-markups/664110/",4,{"url":32,"name":10,"@type":35,"image":36,"author":41,"headline":10,"publisher":44,"fileFormat":47,"inLanguage":8,"description":12,"dateModified":48,"datePublished":48,"encodingFormat":47,"isAccessibleForFree":49,"interactionStatistic":50},"DigitalDocument",{"url":37,"@type":38,"width":39,"height":40},"https://docshare.wps.com/thumbnails/micro-and-macro-perspectives-on-production-based-markups/664110.png","ImageObject",300,407,{"name":42,"@type":43},"pixelkiddo","Person",{"url":19,"name":45,"@type":46},"DocShare","Organization","application/pdf","2026-10-29",true,{"@type":51,"interactionType":52,"userInteractionCount":22},"InteractionCounter",{"@type":53},"ViewAction",{"@type":55,"mainEntity":56},"FAQPage",[57,63,67],{"name":58,"@type":59,"acceptedAnswer":60},"What is the production approach to estimating markups?","Question",{"text":61,"@type":62},"It estimates the markup, the ratio of price to marginal cost, using firms’ production behavior without requiring a model of consumer demand or market structure. The approach relies on a simple relationship implied by cost minimization.","Answer",{"name":64,"@type":59,"acceptedAnswer":65},"Why can implementation differences lead to very different markup results from the same data?",{"text":66,"@type":62},"Because production-based markups are a residual. Small differences in how the first-order condition, output elasticity, or revenue share are specified and measured can cause large changes in the inferred residual.",{"name":68,"@type":59,"acceptedAnswer":69},"What are common explanations for disagreements about whether markups have risen sharply?",{"text":70,"@type":62},"Some studies using production-based specifications find dramatic increases, while others do not. The residual framing highlights that disagreements can stem from misspecification or mismeasurement in the components that determine the markup residual.","https://schema.org",{"og:url":32,"og:type":73,"og:title":10,"og:site_name":45,"og:description":12},"article",{"robots":75,"canonical":32},"index,follow",{"doc_id":77,"site_id":7},664110,1793239705,{"code":4,"msg":80,"data":81},"success",[82,86,90,94,99,104,109,113,118,121,125],{"id":22,"doc_module":4,"doc_module_name":25,"category_name":83,"show_sort_weight":84,"slug":85},"Story & Novel",90,"story-novel",{"id":26,"doc_module":4,"doc_module_name":25,"category_name":87,"show_sort_weight":88,"slug":89},"Literature",80,"literature",{"id":33,"doc_module":4,"doc_module_name":25,"category_name":91,"show_sort_weight":92,"slug":93},"Exam",70,"exam",{"id":95,"doc_module":4,"doc_module_name":25,"category_name":96,"show_sort_weight":97,"slug":98},5,"Comic",60,"comic",{"id":100,"doc_module":4,"doc_module_name":25,"category_name":101,"show_sort_weight":102,"slug":103},6,"Technology",50,"technology",{"id":105,"doc_module":4,"doc_module_name":25,"category_name":106,"show_sort_weight":107,"slug":108},7,"Healthcare",40,"healthcare",{"id":110,"doc_module":4,"doc_module_name":25,"category_name":29,"show_sort_weight":111,"slug":112},8,30,"research-report",{"id":114,"doc_module":4,"doc_module_name":25,"category_name":115,"show_sort_weight":116,"slug":117},9,"Religion & Spirituality",20,"religion-spirituality",{"id":116,"doc_module":4,"doc_module_name":25,"category_name":119,"show_sort_weight":116,"slug":120},"World Cup","world-cup",{"id":122,"doc_module":4,"doc_module_name":25,"category_name":123,"show_sort_weight":122,"slug":124},10,"Lifestyle","lifestyle",{"id":126,"doc_module":4,"doc_module_name":25,"category_name":127,"show_sort_weight":95,"slug":128},19,"General","general",{"code":4,"msg":80,"data":130},{"doc_id":77,"user_id":131,"nickname":42,"user_avatar":132,"doc_module":4,"category_id":110,"category_name":29,"doc_title":10,"doc_description":12,"doc_content":133,"file_id":134,"file_url":135,"file_type":136,"file_size":137,"view_count":22,"is_deleted":4,"is_public":22,"is_downloadable":22,"audit_status":22,"page_count":84,"language":138,"language_code":8,"site_id":7,"html_lang":8,"table_of_contents":139,"faqs":140,"seo_title":141,"seo_description":12,"update_tm":78,"read_time":142},962090883892,"https://ap-avatar.wpscdn.com/avatar/e00115db34f3e0f11b?x-image-process=image/resize,m_fixed,w_180,h_180&k=1790152879550218658","arXiv :2604 . 13224v1 [ econ .GN] 14 Apr 2026  \nMicro and Macro Perspectiveson Production-Based Markups  \nJohn Fernald, Amit Gandhi, Dimitrije Ruzic, and James Traina*  \nApril 2026  \nAbstract  \nWe review the “production approach” to estimating markups, the ratio of price to marginal cost. The approach is uniquely scalable: it requires no model of consumer demand or market structure and applies broadly across firms, industries, and time. Our organizing insight is that the production-based markup is a residual. Like the Solow residual, it is clean in theory but potentially contaminated by misspecification and mismeasurement. This framing helps explain why small differences in implementation can produce starkly different results from the same data. In some cases, markups have risen sharply. In others, they have not. Despite the disagreements in the literature, the importance of understanding and measuring market power cannot be overstated. We provide conceptual rationales for this disagreement, offer practical guidance on data and estimation, and call for greater transparency about how much of the variation attributed to markups may instead reflect technology.  \nJEL Codes: D24, D43, E22, E23, L11, L16, O33, O47  \n*[Fernald: john.fernald@insead.edu. Gandhi:](Fernald: john.fernald@insead.edu. Gandhi:) [amitgandhi@gmail.com. Ruzic:](amitgandhi@gmail.com. Ruzic:) dim[itrije.ruzic@insead.edu. Traina: james.traina@nyu.edu. We](itrije.ruzic@insead.edu. Traina: james.traina@nyu.edu. We) thank Susanto Basu, Arshia Hashemi, seminar participants at INSEAD, the Federal Reserve Banks of San Francisco and Richmond, and the University of Arizona, as well as our editor David Romer and several excellent anonymous referees for helpful comments and feedback.  \n2  \n1. Introduction  \nWe review the “production approach” to estimating markups. Intuitively, markups are about pricing; pricing relates to marginal cost, and marginal cost reflects the production constraints facing firms. The increased availability of firm-level microdata and new econometric methods makes it easier to estimate production functions and infer markups. Our review focuses on this recent firm-level literature, with a goal of bridging micro and macro perspectives. Questions of market power matter for many fields, from industrial organization (IO) to international trade to macroeconomics. We highlight the challenges in moving from firm-level analyses to industry and economy-wide conclusions.  \nHall (1986, 1988, 1990) introduced the production approach. He showed that cost minimization implies the markup µ can be written in a remarkably simple way as the ratio of a flexible input’s output elasticity γ to the cost of that input as a share of total revenue, s. That is, µ = γ/s. Markups can be read directly from producer behavior. It is not necessary to specify the demand system or market structure. This makes it attractive compared to typical methods from IO that are tailored to narrow industries. The production approach scales to large panels of firms across the economy and over time.  \nHall and a large body of work that followed apply his insight to industry data in growth rates. De Loecker and Warzynski (2012) highlight challenges in applying Hall’s industry approach to firm-level data. They propose a variant of Hall’s method that focuses on a single input and uses modern methods for estimating firm-level production functions. A selling point is that the new approach allows estimation of firm-by-firm markups.  \nIn recent years, interest in market power has soared. The interest reflects in part that markups may have risen sharply, and in part that rising markups might provide a unified explanation for a range of macroeconomic puzzles  \n3  \n(De Loecker et al., 2020) . These include declining labor shares, rising economic profits, slow productivity growth, weak investment, and declining dynamism.1  \nMore broadly, modern macroeconomics rests on a foundation of imperfect competition. In","cbCaig2R3MwsacpW","https://ap.wps.com/l/cbCaig2R3MwsacpW","pdf",668484,"English","# Abstract\n# Introduction\n## Production approach and markup identity\n## From firm-level estimates to industry and macro conclusions\n## Rising markups and unresolved empirical evidence\n## Residual framing and sources of mismeasurement","[{\"question\":\"What is the production approach to estimating markups?\",\"answer\":\"It estimates the markup, the ratio of price to marginal cost, using firms’ production behavior without requiring a model of consumer demand or market structure. The approach relies on a simple relationship implied by cost minimization.\"},{\"question\":\"Why can implementation differences lead to very different markup results from the same data?\",\"answer\":\"Because production-based markups are a residual. Small differences in how the first-order condition, output elasticity, or revenue share are specified and measured can cause large changes in the inferred residual.\"},{\"question\":\"What are common explanations for disagreements about whether markups have risen sharply?\",\"answer\":\"Some studies using production-based specifications find dramatic increases, while others do not. The residual framing highlights that disagreements can stem from misspecification or mismeasurement in the components that determine the markup residual.\"}]","Micro and Macro Perspectives on Production-Based Markups | PDF",227]