Rising Markups and the Role of Consumer Preferences

81 Pages Posted: 11 Oct 2021 Last revised: 24 Apr 2023

See all articles by Hendrik Döpper

Hendrik Döpper

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

Alexander MacKay

University of Virginia - Department of Economics

Nathan Miller

Georgetown University - McDonough School of Business

Joel Stiebale

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

Date Written: June 05, 2024

Abstract

We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. Using detailed data on prices and quantities for products in more than 100 distinct product categories, we estimate flexible demand systems and recover markups under an assumption that firms set prices to maximize profit. Our empirical strategy obtains a panel of consumer preferences and marginal costs based on the estimation of separate random coefficient models by category and year. We find that markups increased by about 30 percent on average over the sample period. The change is primarily attributable to decreases in marginal costs, as real prices only increased slightly from 2006 to 2019. 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 (June 05, 2024). 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)

University of Virginia - Department of Economics ( email )

237 Monroe Hall
P.O. Box 400182
Charlottesville, VA 22904-418
United States

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

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