Rising Markups and the Role of Consumer Preferences

Abstract

We analyze 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 categories, we obtain a panel of markups, marginal costs, and flexible consumer preferences. Our empirical strategy uses separate random coefficients logit models for each category and year and an assumption that firms set prices to maximize profits. We find that markups increased by about 30% on average over the sample period. We attribute this change to decreases in marginal costs and a decline in consumer price sensitivity.