Understanding Market Power: Insights from Firm-Level Data on Markups and Profitability in the EU

Liza Archanskaia, Yannick Bormans, Maria Garrone, Waleed Hassan and Anna Thum-Thysen

No 257, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper documents the evolution of market power in the EU from 2007 to 2022 using firm-level financial statements, accounting also for the role of fixed costs. We provide the first joint assessment of markups, price-cost margins and profitability of European firms by combining two frontier estimation methods on the same dataset — mapping the distribution of markups across firms, countries, and industries alongside a decomposition of price-cost margins into fixed costs and excess profitability. The first key finding is that the EU aggregate markup has been stable or only weakly increasing, fluctuating within a narrow range of 1.15 1.30 over this period — contrasting with the pronounced upward trend documented for the United States. These modest increases are driven by within-firm dynamics rather than reallocation or entry-exit, implying possible changes in production processes. The second key finding is that excess profitability, measured as price-cost margins net of fixed costs, has similarly remained stable at 3–5% of total revenue. Both results mask significant heterogeneity: large and publicly listed firms in high-tech industries exhibit higher markups, likely driven by higher excess profitability.

JEL-codes: D22 D24 L16 O52 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:257

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