ABSTRACTThis paper explains how the Solow residual should be adjusted to provide a correct measure of productivity when markets are not perfectly competitive. Although the null hypothesis of a unity markup coefficient can not be rejected, values greater than one also lie within the confidence interval. Hence the adjustment for imperfect competition should be carried out. The finding that the average mark‐up coefficient in the UK is lower than in the US might reflect the higher degree of intra‐EC import competit