The Rise of Market Power and the Macroeconomic Implications*

By Jan De Loecker, Jan Eeckhout. Quarterly Journal of Economics, 2020

1,887 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/d074707db79ab0e7746b40815f54b78e8da701fe

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

Citations in the corpus

What Happened to US Business Dynamism? (2019, neutral): “macro-finance regularities, with Eggertsson et al. (2018) also emphasizing persistently low interest rates. Liu et al. (2019) also focus on the role of low interest rates as a culprit of rising market concentration and declining business dynamism.”
Overlapping Ownership, R&D Spillovers, and Antitrust Policy (2019, neutral): “From Lemma 5 we have that W ′(λ) > 0 if β > β̂ (λ) where β̂ is the unique positive solution to the equation (24).”
From Good to Bad Concentration? US Industries over the Past 30 Years (2019, methodology): “(2013) and Karabarbounis and Neiman (2014) document the decline in the labor share; and IMF (2014); Hall (2015); Fernald et al. (2017) discuss the decline in investment in the context of weak overall growth.”
From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share (2018, neutral): “Another explanation that has gained considerable attention is that of the rise in market power, as measured by increasing markups (Loecker and Eeckhout, 2017).”
Heterogeneous Markups, Growth, and Endogenous Misallocation (2020, background): “They are also markedly lower than the results reported in De Loecker and Eeckhout (2017), who report a sales-weighted average markup of 20% in 1980 and 60% in 2012 for publicly traded firms in the US.”
Artificial intelligence, firm growth, and product innovation (2024, neutral): “FirmVariablei,2010 represents one of the ex ante firm characteristics of interest measured as of 2010: log firm sales in column 1, the ratio of cash to total assets (Cash/Assets) in column 2, the ratio of R&D expenditures to sales (R&D/Sales) in column 3, revenue total factor productivity (TFP)20 in”
Productivity and Misallocation in General Equilibrium* (2017, positive): “(2008), and (as a robustness check) by De Loecker et al. (2019). Measuring total costs requires estimating each firm’s user-cost of capital and capital stock. We compute the user-cost of capital in the spirit of Hall and Jorgenson (1967) where the rental price takes into account, not just the riskle”
Zombie Credit and (Dis-)Inflation: Evidence from Europe (2020, methodology): “Following De Loecker and Warzynski (2012) and De Loecker and Eeckhout (2019), we rely on optimal input demand conditions obtained from standard cost minimization to determine markups for each firm.8 This approach has the advantage that it only requires firms’ financial statements information and no ”