Dundee Discussion Papers in Economics 130: Inflation and measures of the markup

Theoretical models of the markup-inflation relationship focus on the markup of price on marginal costs in contrast with empirical models that typically focus on the markup on unit costs. Using nearly 50 years of quarterly United States data we identify a negative long-run relationship between inflation and the markup of price on unit costs on the one hand and with the markup on marginal costs on the other. We find that the impact of inflation on the marginal cost markup is larger than the impact on the unit cost markup.