We review the “production approach” to estimating markups, the ratio of price to marginal cost. The approach is scalable. It requires no model of consumer demand or market structure and applies broadly across firms, industries, and time. We organize our review around a simple insight: the production-based markup is a residual. Like the Solow residual, it is clean in theory but potentially contaminated by misspecification and mismeasurement. This framing helps explain why small differences in implementation can produce starkly different results from the same data. In some cases, estimated markups have risen sharply. In others, they have not. We provide conceptual rationales for these disagreements, offer practical guidance on data and estimation, and call for greater transparency about how much of the variation attributed to markups may instead reflect technology.
Suggested citation:
Fernald, John, Amit Gandhi, Dimitrije Ruzic, and James Traina. 2026. “Micro and Macro Perspectives on Production-Based Markups.” Federal Reserve Bank of San Francisco Working Paper 2025-20. https://doi.org/10.24148/wp2025-20