Large Firms, Consumer Heterogeneity and the Rising Share of Profits

Robert Feenstra, Luca Macedoni and Mingzhi (Jimmy) Xu

No 29646, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D12 L11 L25 O51 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-ind
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