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Rising Markups and the Role of Consumer Preferences

By: Hendrik Döpper, Alexander MacKay, Nathan H. Miller and Joel Stiebale
  • Format:Print
  • | Language:English
  • | Pages:77
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Abstract

We characterize the evolution of markups for consumer products in the United States from 2006 to 2019. We use detailed data on prices and quantities for products in more than 100 distinct product categories to estimate demand systems with flexible consumer preferences. We recover markups under an assumption that firms set prices to maximize profit. Within each product category, we recover separate yearly estimates for consumer preferences and marginal costs. We find that markups increase by about 30 percent on average over the sample period. The change is attributable to decreases in marginal costs that are not passed through to consumers in the form of lower prices. Our estimates indicate that consumers have become less price sensitive over time.

Keywords

Market Power; Markups; Demand Estimation; Consumer Products; Retailers; Product; Price; Demand and Consumers; Consumer Behavior

Citation

Döpper, Hendrik, Alexander MacKay, Nathan H. Miller, and Joel Stiebale. "Rising Markups and the Role of Consumer Preferences." Harvard Business School Working Paper, No. 22-025, October 2021. (Revised March 2023. Direct download.)

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