Rise of market power




The Rise of Market Power
and the Macroeconomic Implications∗
Jan De Loecker†
KU Leuven and Princeton University
Jan Eeckhout‡
August 4, 2017
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.
Keywords: Markups; Market Power; Secular Trends; Labor Market.
JEL: E2, D2, D4, J3, K2, L1
∗We would like to thank Mark Aguiar, Pol Antras, John Asker, Eric Bartelsman, Steve Berry, Emmanuel Farhi,
Bob Hall, John Haltiwanger, Xavier Gabaix, Eric Hurst, Loukas Karabarbounis, Patrick Kehoe, Pete Klenow, Esteban
Rossi-Hansberg, Chad Syverson, Jo Van Biesebroeck and Frank Verboven for insightful discussions and comments.
Shubhdeep Deb, Morgane Guignard and David Puig provided invaluable research assistance. De Loecker gratefully
acknowledges support from the FWO Odysseus Grant and Eeckhout from the ERC, Advanced grant 339186, and
from ECO2015-67655-P.




Here is Paul Sweezy in 1942 laying out how monopoly power discourages marginal investment. Despite Schumpeter’s support he was denied tenure