Large Firms, Consumer Heterogeneity and the Rising Share of Profits

49 Pages Posted: 17 Jan 2022 Last revised: 3 Jul 2024

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Luca Macedoni

Aarhus University - Department of Economics and Business Economics

Mingzhi Xu

INSE at Peking University

Multiple version iconThere are 2 versions of this paper

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.

Suggested Citation

Feenstra, Robert C. and Macedoni, Luca and Xu, Mingzhi, Large Firms, Consumer Heterogeneity and the Rising Share of Profits (January 2022). NBER Working Paper No. w29646, Available at SSRN: https://ssrn.com/abstract=4010495

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Luca Macedoni

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Mingzhi Xu

INSE at Peking University ( email )

Peking University
China
Beijing, Beijing 100871
China

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

Paper statistics

Downloads
18
Abstract Views
208
PlumX Metrics