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The Rise of Market Power and the Macroeconomic Implications

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  • Jan De Loecker
  • Jan Eeckhout

Abstract

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.

Suggested Citation

  • Jan De Loecker & Jan Eeckhout, 2017. "The Rise of Market Power and the Macroeconomic Implications," NBER Working Papers 23687, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23687 Note: EFG IO PR
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    References listed on IDEAS

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    Cited by:

    1. Bougette, Patrice & Budzinski, Oliver & Marty, Frédéric, 2017. "Exploitative abuse and abuse of economic dependence: What can we learn from the industrial organization approach?," Ilmenau Economics Discussion Papers 111, Ilmenau University of Technology, Institute of Economics.
    2. David Rezza Baqaee & Emmanuel Farhi, 2017. "Productivity and Misallocation in General Equilibrium," NBER Working Papers 24007, National Bureau of Economic Research, Inc.
    3. Erik Brynjolfsson & Daniel Rock & Chad Syverson, 2018. "Artificial Intelligence and the Modern Productivity Paradox: A Clash of Expectations and Statistics," NBER Chapters,in: Economics of Artificial Intelligence National Bureau of Economic Research, Inc.
    4. Dominique Guellec & Caroline Paunov, 2017. "Digital Innovation and the Distribution of Income," NBER Working Papers 23987, National Bureau of Economic Research, Inc.
    5. Ahmed S. Rahman, 2017. "Rise of the Machines Redux – Education, Technological Transition and Long-run Growth," Departmental Working Papers 61, United States Naval Academy Department of Economics.
    6. Olivier J. Blanchard & Lawrence H. Summers, 2017. "Rethinking Stabilization Policy: Evolution or Revolution?," NBER Working Papers 24179, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • K2 - Law and Economics - - Regulation and Business Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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