The Rise of Market Power and the Macroeconomic Implications*

Abstract

We document the evolution of market power based on firm-level data for the U.S. economy since 1955. We measure both markups and profitability. In 1980, aggregate markups start to rise from 21% above marginal cost to 61% now. The increase is driven mainly by the upper tail of the markup distribution: the upper percentiles have increased sharply. Quite strikingly, the median is unchanged. In addition to the fattening upper tail of the markup distribution, there is reallocation of market share from low- to high-markup firms. This rise occurs mostly within industry. We also find an increase in the average profit rate from 1% to 8%. Although there is also an increase in overhead costs, the markup increase is in excess of overhead. We discuss the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the past four decades, most notably the declining labor and capital shares as well as the decrease in labor market dynamism.

What Are the Price Effects of Trade? Evidence From the U.S. and Implications for Quantitative Trade Models

“…We use a product hierarchy from the BLS that classifies ELIs in various groups (e.g., to assess the role of apparel or high-tech goods), demand-side variables from the public-use Consumer Expenditure Survey, 21 and several supply-side variables from Broda and Weinstein (2006), the NBER-CES Manufacturing Database and the U.S. Census (e.g., trade elasticities, average wages, capital intensity, total factor productivity, and market concentration). We also use data from the French CPI to implement placebo tests and Compustat data to measure markups following De Loecker et al (2017). These variables are introduced when relevant in subsequent sections.…”

“…To test the theoretical framework above as directly as possible, we examine whether estimated markups for domestic producers fall in response to increased trade with China. We follow the methodology of De Loecker et al (2017) and estimate markups for publicly-listed firms in Compustat. In this sample, indexing firms by i and years by t, the gross markup can be written…”

The Rise in Corporate Saving and Cash Holding in Advanced Economies:

“…The role of the non-financial corporate sector in driving various aggregate structural trends such as the decline in labor income shares (see Autor et al (2017); Chen et al (2017)), higher average mark-ups and profit shares (De Loecker and Eeckhout (2017); Barkai (2016)), and declining investment and productivity growth (Gutiérrez and Philippon (2017)) has been gaining increased attention in the literature. Meanwhile in policy circles, there is mounting interest in understanding the corporate sector's role in driving the increase and persistence of current account surpluses of some countries (IMF (2017)).…”

Reflections on the Future Evolution of Social, Nonprofit and Cooperative Enterprise

“…In particular, many cooperatives, both producer and consumer, have come into existence in order to circumvent market power (for agricultural cooperatives, see Cook ). With globalization and other economic and political developments, competition in some industries has increased, yet overall, market power has increased (De Loecker and Eeckhout ) and appears to be poised to grow. This is likely to increase demand for social, nonprofit and cooperative enterprises.…”