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Rising Markups and the Role of Consumer Preferences

Author

Listed:
  • Hendrik Döpper
  • Alexander MacKay
  • Nathan H. Miller
  • Joel Stiebale

Abstract

We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. Using detailed data on prices and quantities for products in more than 100 distinct product categories, we estimate flexible demand systems and recover markups under an assumption that firms set prices to maximize profit. Our empirical strategy obtains a panel of consumer preferences and marginal costs based on the estimation of separate random coefficient models by category and year. We find that markups increased by about 30 percent on average over the sample period. The change is primarily attributable to decreases in marginal costs, as real prices only increased slightly from 2006 to 2019. Our estimates indicate that consumers have become less price sensitive over time.

Suggested Citation

  • Hendrik Döpper & Alexander MacKay & Nathan H. Miller & Joel Stiebale, 2024. "Rising Markups and the Role of Consumer Preferences," NBER Working Papers 32739, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32739
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    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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