The Rise of Market Power and the Macroeconomic Implications
We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms.
We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output.
We would like to thank Mark Aguiar, Pol Antras, John Asker, Eric Bartelsman, Steve Berry, Emmanuel Farhi, Bob Hall, John Haltiwanger, Xavier Gabaix, Eric Hurst, Loukas Karabarbounis, Patrick Kehoe, Pete Klenow, Esteban Rossi-Hansberg, Chad Syverson, Jo Van Biesebroeck and Frank Verboven for insightful discussions and comments. Shubhdeep Deb, Morgane Guignard and David Puig provided invaluable research assistance. De Loecker gratefully acknowledges support from the FWO Odysseus Grant and Eeckhout from the ERC, Advanced grant 339186, and from ECO2015-67655-P. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jan De Loecker & Jan Eeckhout & Gabriel Unger, 2020. "The Rise of Market Power and the Macroeconomic Implications*," The Quarterly Journal of Economics, vol 135(2), pages 561-644.