Abstract
The production approach estimates firms' markups using sales, variable costs, and output elasticity. The approach has recently attracted the attention of scholars and policymakers for its straightforward implementation and limited data requirements. Criticism has also been directed at the approach and validation of the approach is called for. This paper provides a novel empirical assessment of the approach using rich panel data on the complete population of Swedish firms across four sectors (1998-2019). I first estimate the markup of each firm using the production approach. Using two sources of identification, I then test whether these estimates can match the stylized fact that markups are higher on more concentrated local markets. In static tests, I study geographically independent markets that vary in market structure and find that estimated markups corroborate to the stylized fact for three of the four sectors. In dynamic tests, focusing on changes in concentration, I find that markups fall with entry and rise with exits.