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Markups, Consumption and Market Concentration

Paper Session

Friday, Jan. 4, 2019 8:00 AM - 10:00 AM

Hilton Atlanta, 403
Hosted By: Society for Economic Dynamics
  • Chair: Arlene Wong, Princeton University

Markups across Space and Time

Eric Anderson
,
Northwestern University
Sergio Rebelo
,
Northwestern University
Arlene Wong
,
Princeton University

Abstract

In this paper, we provide direct evidence on the behavior of markups in the retail sector across space and time. Markups are measured using gross margins. We consider three levels of aggregation: the retail sector as a whole, firm-level data, and productlevel data. We find that: (1) markups are relatively stable over time and mildly procyclical; (2) there is large regional dispersion in markups; (3) there is a positive cross-sectional correlation between local income and local markups; and (4) differences in markups across regions are explained by differences in assortment, not by deviations from uniform pricing. We propose an endogenous assortment model that is consistent with these facts.

Quantifying the Effects of Market Power

Jan De Loecker
,
Leuven and Princeton
Jan Eeckhout
,
Pompeu Fabra University and University College London
Simon Mongey
,
University of Chicago

Abstract

We quantify the aggregate implications of the rise in market power. We provide a general equilibrium, oligopolistic model of firm dynamics, that can reproduce the key properties of firm dynamics via endogenous markup adjustment. A decrease in the number of firms – chosen to target the decline in dispersion of firm growth rates and the observed idiosyncratic shocks – explains recent secular trends in US data: reduced responsiveness of firm growth to shocks, lower rates of job creation and destruction, higher profitability driven by growth at upper percentiles, higher markups, and a lower labor share. Higher costs in the canonical model with adjustment frictions can match the same targets, but imply a counterfactually large decline in aggregate profits and do not match the evolution of markups.

The Rise in Household Spending Concentration

Brent Neiman
,
University of Chicago
Joseph Vavra
,
University of Chicago

Abstract

Household consumption bundles look increasingly different from each other. Using detailed scanner data from 2004-2015, we document that households are concentrating more and more spending on their preferred products. These products, however, are not "superstars" that are purchased by everyone. Rather, household purchases are increasingly idiosyncratic. As a result, aggregate product concentration has actually declined even as product concentration within households has risen. This trend is pervasive across geographic locations and product categories and even holds within demographic and income groups. The growth in household concentration is associated with households purchasing new and dropping old products and is most rapid in retail chains that introduce the most new products. Further, those households with more concentrated product spending pay more for the products they purchase. These patterns suggest firms are increasingly able to introduce customized products or that consumers can better find them, and carry implications for market power and consumer welfare.

Diverging Trends in National and Local Concentration

Esteban Rossi-Hansberg
,
Princeton University
Pierre-Daniel Sarte
,
Federal Reserve Bank of Richmond
Nicholas Trachter
,
Federal Reserve Bank of Richmond

Abstract

Using U.S. NETS data, we present evidence that the positive trend observed in national product- market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment.
JEL Classifications
  • E3 - Prices, Business Fluctuations, and Cycles
  • D4 - Market Structure, Pricing, and Design