Working Paper: NBER ID: w29646
Authors: Robert C. Feenstra; Luca Macedoni; Mingzhi Xu
Abstract: We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, the presence of consumer heterogeneity increases the profit share because it increases firm-level markups. Using data on purchases at the household-barcode level from Nielsen, we quantify the role of consumer heterogeneity, finding that the aggregate markup and the profit share are 8 and 3 percentage points larger than those predicted by a model of a representative consumer. Furthermore, we find that the profit share has been increasing over time and that firm targeting of consumer types plays a role in explaining this rise.
Keywords: Consumer Heterogeneity; Profit Share; Oligopolistic Competition
JEL Codes: D12; L11; L25; O51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Consumer heterogeneity (D11) | Firm-level markups (L11) |
| Firm-level markups (L11) | Profit share (D33) |
| Consumer heterogeneity (D11) | Profit share (D33) |
| Consumer heterogeneity (D11) | Increase in profit share over time (D33) |
| Changes in consumer preferences (D12) | Firm strategies (L21) |
| Firm strategies (L21) | Rising firm markups (D43) |
| Consumer heterogeneity (D11) | Higher prices (D49) |