Monopoly pricing power may be keeping U.S. corporate earnings margins high and may justify even higher equity prices, but the economy is increasingly less competitive and vibrant as a result.
The markups that firms charge customers above their marginal costs have gone up and up in recent years, from 18 percent in 1980 to 67 percent by 2014, according to a study by economists Jan De Loecker and Jan Eeckhout.
That jump has created the conditions to support today’s high stock market valuations. Not only are companies rolling in cash thanks to high markups, but their need to share the benefits with lower-skilled workers has diminished.
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