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Large Firms, Consumer Heterogeneity, and the Profit Share

Author

Listed:
  • Robert C. Feenstra
  • Luca Macedoni
  • Mingzhi (Jimmy) Xu

Abstract

We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, consumer heterogeneity increases firm-level markups and the profit share. Using Nielsen IQ data on purchases at the household-barcode level, we quantify the role of consumer heterogeneity, finding that the average markup and the profit share are 20 and 6.4 percentage points larger than predicted by a representative consumer model. Extrapolating our results to the period 1990–2021, rising income inequality implies an increase of more than 4 percentage points in the retail profit share.

Suggested Citation

  • Robert C. Feenstra & Luca Macedoni & Mingzhi (Jimmy) Xu, 2026. "Large Firms, Consumer Heterogeneity, and the Profit Share," American Economic Journal: Macroeconomics, American Economic Association, vol. 18(2), pages 260-291, April.
    • Handle: RePEc:aea:aejmac:v:18:y:2026:i:2:p:260-91
    DOI: 10.1257/mac.20220017
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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