Is corporate market power really surging?
By Alex Verkhivker – In economic circles, an argument has gained traction that corporate market power is surging, resulting in skyrocketing markups, a falling labor share, and other negative consequences for consumers and workers. But some researchers are pushing back, emphasizing weaknesses in the argument and urging policy makers to be cautious before taking any actions.
Proponents of the market-power argument often rely on one of two methodologies, one that calculates and compares total revenues and costs at the economy-wide level and another that uses company-level data. University of Minnesota’s Loukas Karabarbounis and Chicago Booth’s Brent Neiman focus on the first of these two, in which the economy is considered a pie that is made of up three slices: the labor share (which goes to workers), the capital share (costs incurred to use factories, equipment, software, etc.), and economic profits. Economic profits are calculated by finding the difference between revenues and costs, including the cost of capital faced by companies to fund their assets used in production. more>