Large Firms, Consumer Heterogeneity and the Rising Share of Profits
49 Pages Posted: 17 Jan 2022 Last revised: 3 Jul 2024
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Large Firms, Consumer Heterogeneity and the Rising Share of Profits
Date Written: January 2022
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.
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