Working Paper: CEPR ID: DP16156
Authors: Coen N. Teulings; Ellen van T. Klooster
Abstract: De Loecker et al. (2020) have shown that markups of publicly traded firmshave risen since 1980 in the US. They find that this rise cannot be attributedto a particular sector. Using the same data, this paper shows that the increasein markup is concentrated among IT firms. Firms can be classified as ITor non-IT based on industry codes, but this method ignores a number of ITfirms outside specific IT industries, e.g. Amazon and Uber. We develop analternative, firm-level classification method, by applying natural languageprocessing (NLP) to the description of firms’ activities in Compustat. Afterclassifying firms as IT and non-IT, we show that markups in the period since1980 fall apart in two episodes. In the first, from 1980 until 1996, non-ITfirms recovered from the fall of markups in the seventies. In the secondepisode, since 1996, markups of IT firms exploded from 46% in 1996 to94% in 2017, while the markup of non-IT firms was largely stagnant.
Keywords: Information Technology; Market Power; Markup
JEL Codes: D2; D4; E2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| being classified as an it firm (L86) | markup levels (D43) |
| firms at the top of the markup distribution (L11) | markup levels (D43) |
| being classified as an it firm (L86) | average markup of the full sample (M31) |
| most productive firms (D21) | average markups (D43) |