Rising Markups and the Role of Consumer Preferences
64 Pages Posted: 11 Oct 2021 Last revised: 22 Jul 2022
Date Written: May 12, 2022
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
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