Large Firms, Consumer Heterogeneity, and the Profit Share

Robert Feenstra, Luca Macedoni and Mingzhi (Jimmy) Xu

American Economic Journal: Macroeconomics, 2026, vol. 18, issue 2, 260-91

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, consumer heterogeneity increases firm-level markups and the profit share. Using Nielsen IQ data on purchases at the household-barcode level, we quantify the role of consumer heterogeneity, finding that the average markup and the profit share are 20 and 6.4 percentage points larger than predicted by a representative consumer model. Extrapolating our results to the period 1990–2021, rising income inequality implies an increase of more than 4 percentage points in the retail profit share.

JEL-codes: D12 D22 D33 L25 L81 M31 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mac.20220017

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