Rising Markups and the Role of Consumer Preferences

64 Pages Posted: 11 Oct 2021 Last revised: 22 Jul 2022

See all articles by Hendrik Döpper

Hendrik Döpper

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Alexander MacKay

Harvard University - Business School (HBS)

Nathan Miller

Georgetown University - McDonough School of Business

Joel Stiebale

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE)

Date Written: May 12, 2022

Abstract

We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. We use detailed data on prices and quantities for products in more than 100 distinct product categories to estimate demand systems with flexible consumer preferences. We recover markups under an assumption that firms set prices to maximize profit. Within each product category, we recover separate yearly estimates for consumer preferences and marginal costs. We find that markups increase by about 25 percent on average over the sample period. The change is attributable to decreases in marginal costs that are not passed through to consumers in the form of lower prices. Our estimates indicate that consumers have become less price sensitive over time.

Keywords: Market Power, Markups, Demand Estimation, Consumer Products, Retailers

JEL Classification: D2, D4, L1, L2, L6, L81

Suggested Citation

Döpper, Hendrik and MacKay, Alexander and Miller, Nathan and Stiebale, Joel, Rising Markups and the Role of Consumer Preferences (May 12, 2022). Harvard Business School Strategy Unit Working Paper No. 22-025, Georgetown McDonough School of Business Research Paper No. 3939126, Available at SSRN: https://ssrn.com/abstract=3939126 or http://dx.doi.org/10.2139/ssrn.3939126

Hendrik Döpper

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Alexander MacKay (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://alexandermackay.org/

Nathan Miller

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Joel Stiebale

Heinrich Heine University Dusseldorf - Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
692
Abstract Views
2,251
rank
54,171
PlumX Metrics