International Economics Seminar Series: Novel Methodologies for Markup Estimation with Multiproduct Firms featuring Frederic Warzynski

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At the most recent International Trade Seminar, Frederic Warzynski, a visiting scholar at Princeton University, presented Novel Methodologies for Markup Estimation with Multiproduct Firms, his latest working paper.

A key challenge in estimating marginal costs and markups for firms producing multiple products is how to allocate material inputs across those products. Warzynski and his coauthors propose a novel approach to estimate marginal cost, product quality, and productivity at the firm-product level by jointly modeling demand, production, and cost.

The authors apply their framework to Belgian bakery firms using detailed firm-level production data (PRODCOM), which they match with information on sales, input purchases, capital stock, employment, and wages. A natural experiment arose from Belgium’s 2004 deregulation of maximum bread prices, allowing the researchers to assess how this policy shift affected both the bread and cake markets—products typically made by the same firms.

Their findings reveal that marginal costs are almost always below prices, and markups are significantly higher for cake—roughly double those for bread.

The analysis also suggests that multiproduct firms operate more efficiently than single-product firms, consistent with economies of scope. Following deregulation, firms improved product quality and became more productive, resulting in meaningful welfare gains for both consumers and firms.