Are Price-Cost Markups Rising in the United States? A Discussion of the Evidence

By S. Basu. Journal of Economic Perspectives, 2019

217 citations recorded by the source corpus.

A number of recent papers have argued that US firms exert increasing market power, as measured by their markups of price over marginal cost. I review three of the main approaches to estimating economy-wide markups and show that all are based on the hypothesis of firm cost minimization. Yet different assumptions and methods of implementation lead to quite different conclusions regarding the levels and trends of markups. I survey the literature critically and argue that some of the startling findings of steeply rising markups are difficult to reconcile with other evidence and with aggregate data. Existing methods cannot determine whether markups have been stable or whether they have risen modestly over the past several decades. Even relatively small increases in markups are consistent with significant changes in aggregate outcomes, such as the observed decline in labor’s share of national income.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/228543927c88e27e79faf062b1d6f73c158f994f

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Citations in the corpus

Market Power and Innovation in the Intangible Economy (2019, background): “6Dispersion in pay is also increasing across firms, as found by Berlingieri et al. (2017) and Song et al. (2018). 7Kehrig and Vincent (2019) note that an increase in productivity dispersion at the establishment level may reflect an improvement in factor allocation and a reduction of internal credit ”
The Elusive Explanation for the Declining Labor Share (2021, background): “19See the very nice summary and discussion of recent work on measuring the markup by Basu (2019).”
From Good to Bad Concentration? US Industries over the Past 30 Years (2019, methodology): “Estimates of returns to scale based on the methodology of Basu et al. (2006) have remained stable, as have other estimates in the recent literature (Ho and Ruzic, 2017; Diez et al., 2018). All these predictions are consistent with the κ theory. Barriers to competition therefore emerge as the most re”
The Rise of Market Power and the Macroeconomic Implications* (2020, unknown): “Basu (2019) performs a slightly different exercise.”
Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data (2020, background): “Alternatively, as explained in Basu (2019) , X j it could be a bundle of inputs, of which at least one component is perfectly ﬂexible, with the other components being fully ﬁxed.”