Large Firms, Consumer Heterogeneity, and the Profit Share
Abstract
We examine the relationship between large firms and the rising profit share in a model that features oligopolistic competition and consumer heterogeneity. Conditional on the sales distribution, consumer heterogeneity increases firm-level markups and the profit share. Using NielsenIQ data on purchases at the household-barcode level, we quantify the role of consumer heterogeneity, finding that the average markup and the profit share are 20 and 6.4 percentage points larger than predicted by a representative consumer model. Extrapolating our results to the period 1990–2021, rising income inequality implies an increase of more than 4 percentage points in the retail profit share. (JEL D12, D22, D33, L25, L81, M31)
Fields of Study & Subjects
Consumer Market Behavior and Pricing
Firm Innovation and Growth
Merger and Competition Analysis
Publication details
- Journal / source
- American Economic Journal Macroeconomics
- Publisher
- American Economic Association
- Volume
- 18
- Issue
- 2
- Pages
- 260–291
- Publication date
- 30 March 2026
- Language
- EN