“Prices, Markups and Quality at the Firm-Product Level” by Frederic Warzynski
In this paper, we analyze price and markup dynamics at the firm product level in Belgian manufacturing over more than a decade and relate these to firm-product productivity and quality dynamics. We use a detailed dataset that provides information about firms’ product portfolio composition and the value and quantity sold for each product. We estimate a firm-product level marginal cost accounting for the multiproduct nature of production and compute a firm-product markup variable. We then estimate demand elasticity and product quality following Berry (1994). As a next step, we estimate a multiproduct production function (MPPF) using physical quantity as dependent variable and obtain a firm-product measure of TFP. We relate all these variables to better understand what is driving price and markup dynamics over a long time period. We find that our methodology generates sensible estimates in line with recent theoretical models of international economics with endogenous markups.