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The Present Value of Future Market Power

Author

Listed:
  • Cho, Thummim
  • Grotteria, Marco
  • Kremens, Lukas
  • Kung, Howard

Abstract

We introduce a present-value identity relating a firm’s market value to expected future markups, output growth, discount rates, and investments. Distinguishing current from expected markups reveals five empirical facts: (i) Expected markups account for half the rise in U.S. firm values since 1980. (ii) The rise in aggregate expected markups reflects market-share reallocation towards high-expected-markup firms and within-firm increases. (iii) Expected markups are linked to intangible investments. (iv) They relate negatively to discount rates over time but (v) positively to abnormal returns across firms. Finally, variation in long-term expected markups is primarily associated with asset prices rather than current markups.

Suggested Citation

  • Cho, Thummim & Grotteria, Marco & Kremens, Lukas & Kung, Howard, 2025. "The Present Value of Future Market Power," CEPR Discussion Papers 20540, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20540
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    File URL: https://cepr.org/publications/DP20540
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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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