Quantifying Market Power and Business Dynamism in the Macroeconomy

De Loecker, Eeckhout, and Mongey build a general-equilibrium model of firms, entry, technology, and oligopolistic product markets and discipline it with U.S. data from 1980 through 2023. The model needs changes in productivity, overhead costs, and the number of potential competitors to reproduce the observed rise in markups and decline in business dynamism.

They estimate that gains from reallocating activity toward more productive firms were offset by increasing market power and overhead, leaving a net welfare decline of 5%. The model also reproduces falling labor-force participation, weaker wages, and sales shifting toward larger firms.