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Data and Markups: A Macro-Finance Perspective

Author

Listed:
  • Jan Eeckhout
  • Laura Veldkamp

Abstract

What does market power look like in a data economy? We model data as fuel for prediction and study how it changes measured markups. Data has ambiguous effects on product markups: By reducing risk, it lowers markups. By prompting investment, it raises them. Its more distinctive effect is on aggregation. Better-informed firms shift production toward goods that have high realized profitability. This action-payoff covariance drives a wedge between product, firm, and industry markup measures. We show that this normalized covariance provides a lower bound on firms’ information. The calibrated model generates most of the observed level gap between cost-weighted and sales-weighted markups and can account for 82% of its 2010-2020 growth.

Suggested Citation

  • Jan Eeckhout & Laura Veldkamp, 2022. "Data and Markups: A Macro-Finance Perspective," NBER Working Papers 30022, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30022
    Note: AP CF EFG IO ME
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    Cited by:

    1. Alexandre Chirat, 2022. "Consumer sovereignty in the digital society," EconomiX Working Papers 2022-25, University of Paris Nanterre, EconomiX.
    2. Carl-Christian Groh, 2024. "Big Data and Inequality," CRC TR 224 Discussion Paper Series crctr224_2024_555, University of Bonn and University of Mannheim, Germany.
    3. Tsuyoshi NAKAMURA & Hiroshi OHASHI, 2022. "Japanese Firms' Markups and Firm-to-firm Transactions," Discussion papers 22083, Research Institute of Economy, Trade and Industry (RIETI).
    4. Groh, Carl-Christian, 2023. "Search, Data, and Market Power," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277701, Verein für Socialpolitik / German Economic Association.
    5. Michael Choi & Guillaume Rocheteau, 2024. "Information acquisition and price discrimination in dynamic, decentralized markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 53, pages 1-46, July.
    6. Hiroshi Aiura & Toshiki Kodera, 2024. "Location-price competition with freight absorption pricing in a data sharing economy," SN Business & Economics, Springer, vol. 4(1), pages 1-19, January.

    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • L0 - Industrial Organization - - General

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