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  3. American Economic Journal: Macroeconomics
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  5. Large Firms, Consumer Heterogeneity and the Profit Share

American Economic Journal:
Macroeconomics

ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)

Large Firms, Consumer Heterogeneity and the Profit Share

  • Robert C. Feenstra
  • Luca Macedoni
  • Mingzhi (Jimmy) Xu
American Economic Journal: Macroeconomics (Forthcoming)

Abstract

We examine the relationship between large firms and profit share in an oligopolistic competition model with consumer heterogeneity. Conditional on the sales distribution, the presence of consumer heterogeneity increases the profit share by raising firm-level markups. Using household-level purchase data from NielsenIQ, we find that the average markup and the aggregate profit share are 20 and 6.4 percentage points larger than those predicted by a model of a representative consumer. Our analysis from 2004 to 2018, extrapolated to 1990-2021, suggests that rising income inequality could have increased the retail profit share by over 4 percentage points during this longer period.

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