PRICE, MARGINAL COST AND THE BUSINESS-CYCLE

We estimate mark-ups of price over marginal cost for UK manufacturing, based on the approach of Hall (1988). We also extend his method to al low for varying mark-ups over industries and the cycle. Using data of 16 two-digit industries, 1968-89, we find: (a) the average mark-up in UK manufacturing is 2.00, (b) mark-ups are procyclical, (c) mark-ups a re higher in more concentrated industries. Finding (b) is evidence aga inst the macroeconomic theory that the transmission of demand shocks t o employment works via counter-cyclical mark-ups. Finding (c) suggests a significant relation between mark-ups and market structure that has proved elusive in industrial economics studies that use profit rates to measure mark-ups.