The Rise of Market Power and the Macroeconomic Implications*

Abstract 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…

• HU
  Harvard University
• CF
  Centre for Economic Policy Research
• UP
  Universitat Pompeu Fabra
• FW
  Fonds Wetenschappelijk Onderzoek
• IC
  Institució Catalana de Recerca i Estudis Avançats
• KL
  KU Leuven