Price and markup dispersion among United States manufacturing plant

This thesis summarizes the plant-level heterogeneity in output price, marginal cost and the price-cost margin among manufacturers of fourteen relatively homogeneous products. It uses plant-level micro data from the Census of Manufacturers for the period 1963 through 1987. The thesis first estimates a structural model of cost and describes the pricing, cost, and markup patterns across plant sizes. It then estimates reduced-form models of competition in oligopolistic markets.;Previous work has attributed differences in industry-level profitability either to differences in efficiency among producers or to imperfect competition. To distinguish between these two hypotheses one would like to have measures of producer prices and marginal cost. However, since such plant-level micro data is generally unavailable, most researchers have examined across-industry differences in profitability and concentration. The present study provides a detailed within-industry analysis of the price-cost margin that allows for a more direct test of the differential efficiency and the imperfect competition hypotheses.;The first section estimates a structural model of cost, exploring biases due to plant-level heterogeneity and measurement error. Using the cost function parameter estimates, plant-level estimates of marginal cost and scale economies are calculated. In the second section the plant-level output price and marginal cost are then used to examine the pattern of price-cost margins across the size distribution of producers. The result reveal that the output price and marginal cost generally fall with plant size, with output price declines ranging from under two percent in gasoline to over fifty percent in hardwood plywood. The change in the price-cost margin as plant size increases differs significantly across products.;The final section of the thesis develops reduced-form oligopoly models to distinguish between imperfect competition and efficiency differences. Several of the industries are likely to serve regional rather than national markets, and for these industries, regional markets are defined around the plant. Local market competition is examined by incorporating information on the plant, on rival plants, and on demand characteristics of the market. The reduced-form models show that while efficiency differences explain much of the observed price and markup patterns, differences in competition are important for some products.