Markup Behavior in Durable and Nondurable Manufacturing: A Production Theory Approach
38 Pages Posted: 9 Jun 2004 Last revised: 17 Jul 2022
Date Written: April 1989
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.
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