Are Markets Becoming Less Competitive?

Inflation is a measure of rising prices generally, but markups measure how much individual firms set prices above their costs. [...]it is possible for markups to rise because firms facing little competition are able to set prices high or because efficient firms have found ways to reduce their costs...

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Bibliographic Details
Published in:Federal Reserve Bank of Richmond. Economic Brief 2019, Vol.19 (6), p.1-8
Main Authors: Sablik, Tim, Trachter, Nicholas
Format: Report
Language:English
Subjects:
Banking
Census of Population
Central banks
Competition
Costs
Economic growth
Economic models
Economic policy
Entrepreneurship
Federal Reserve monetary policy
Inflation
Interest rates
Labor market
Macroeconomics
Monetary policy
Power
Prices
Productivity
Profitability
Profits
Trends
Wages & salaries
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Summary:Inflation is a measure of rising prices generally, but markups measure how much individual firms set prices above their costs. [...]it is possible for markups to rise because firms facing little competition are able to set prices high or because efficient firms have found ways to reduce their costs while keeping prices stable. [...]even if markups were rising because firms with market power were raising prices, they would need to do so across time and across industries in order to have an impact on inflation. Basic economics implies that businesses with market power withhold at least some production in order to keep prices high. [...]if firms produce less due to a lack of competition, they also may hire fewer workers, which could raise unemployment or, in the long run, reduce workforce participation. [...]the market shares of the four largest firms in most industries have increased, and both the average and median size of public firms (which tend to be larger than private firms) have tripled.9 As noted at the outset of this Economic Brief, rising concentration alone does not necessarily mean that market power is going up.
ISSN:2475-9546
2475-9546