Price-cost markups in UK industry

ABSTRACT

This article tests for the presence of monopolistic price markups across UK industrial sectors by testing for a non-zero covariance between the Solow residual and various instruments. This restriction derives from profit maximising conditions for a representative imperfectly competitive firm under the assumption of constant returns to scale. We find evidence of significant markups in the Manufacturing and Services sectors which together account for more than 90% of total employment within the UK.

KEYWORDS:

• Price-cost markup
• monopoly power

JEL CLASSIFICATION:

• D43
• L16

Acknowledgement

Thanks are due to an anonymous referee for a number of comments on an earlier draft of this article.

Disclosure statement

No potential conflict of interest was reported by the author.