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Large Firms, Consumer Heterogeneity and the Rising Share of Profits

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  • Robert C. Feenstra
  • Luca Macedoni
  • Mingzhi Xu

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

  • Robert C. Feenstra & Luca Macedoni & Mingzhi Xu, 2022. "Large Firms, Consumer Heterogeneity and the Rising Share of Profits," NBER Working Papers 29646, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29646
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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