A decomposition of price-cost margins in UK manufacturing

Abstract

The paper follows a methodology developed by Schmalensee to decompose the time varying behaviour of price-cost margins into an intra-industry and an inter-industry component. By doing so light can be shed on whether cyclical movements in industry price-cost margins reflect industry effects such as concentration or collusion or firm effects such as the performance of large versus small firms. Findings for the UK confirm Schmalensee's for the US in attributing most of the variance over time to size effects rather than industry effects but contrary to Schmalensee the size effect is positive in the sample not negative.