Two macro trends over 40 years:
- Rising markups
- Falling business dynamism
Are these related? Many economists say so.
@UpdatedPriors and I have an updated paper where we take an IO approach and look sector by sector.
Spoiler: The industry data tells a different story 🧵 **
The economic logic makes some sense:
Higher markups → firms have market power → barriers keep out competitors → less entry/dynamism
This story is so widely accepted. It’s in the background of all antitrust discourse.
But what happens when we test it at the industry level? **
Plot twist: no relationship.
If anything, industries with BIGGER markup increases had SMALLER dynamism declines.
That’s the opposite of what the market power story predicts.
We checked this relationship every way imaginable. **
…
Two macro trends over 40 years:
- Rising markups
- Falling business dynamism
Are these related? Many economists say so.
@UpdatedPriors and I have an updated paper where we take an IO approach and look sector by sector.
Spoiler: The industry data tells a different story 🧵 **
The economic logic makes some sense:
Higher markups → firms have market power → barriers keep out competitors → less entry/dynamism
This story is so widely accepted. It’s in the background of all antitrust discourse.
But what happens when we test it at the industry level? **
Plot twist: no relationship.
If anything, industries with BIGGER markup increases had SMALLER dynamism declines.
That’s the opposite of what the market power story predicts.
We checked this relationship every way imaginable. **
We ran hundreds of specifications:
- Different markup measures
- Different dynamism metrics
- Different weighting
T-stats cluster around zero or slightly positive. The median effect? Positive! **
NEW in this version: We added NBER-CES manufacturing data through 2019
Why this matters:
- Much finer detail (up to 4-digit NAICS vs 2-3 digit elsewhere)
- Census plant-level sources, not just public firms
Same method, same result: no relationship **
Maybe it’s about timing?
We use local projections to trace out dynamic effects.
A markup increase today should reduce entry/dynamism in future years if market power is the mechanism.
Nope. Nothing. **
One markup measure does correlate: labor share.
When labor markup rises, dynamism drops.
But this might reflect automation or changing production technology, not market power. Pure market power should show up in all markup measures. **
What our results really suggest: Rising markups and declining dynamism are parallel trends, not cause and effect.
They’re occurring in different industries at different times.
Any aggregate correlation seems spurious; two independent phenomena happening to coincide temporally **
This week’s Nobel commentary keeps treating “rising markups killed dynamism” as settled science.
It’s not. Our industry-level evidence suggests these are independent trends.
We’re designing competition policy based on a correlation that doesn’t exist. **
We see this as challenging the conventional wisdom. As such, we welcome feedback.
Full paper here briancalbrecht.com/Albrecht_Decke… **
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