Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data

Abstract

This paper presents a new econometric framework that permits simultaneous estimation of price‐cost margins, scale economies and productivity from a panel of establishment data. The model contains only a few, economically interesting parameters to be estimated, but it is nevertheless consistent with a flexible (translog) underlying technology, quasi‐fixed capital and the presence of persistent differences in productivity between establishments. The framework is applied to study market power, scale economies and productivity differences in a number of manufacturing industries in Norway. The results reveal statistically significant, but quite small, margins between price and marginal costs in most manufacturing industries.