Comment

Abstract

Macroeconomics has become interested inmarket power.A series of studies over the past few years has documented a set of possibly interrelated, broad-based, and decades-long trends: increased market concentration, higher profit rates, higher measured price-cost markups, decreased investment rates, reduced firm entry and factor market dynamism, and a fall in labor’s share of income. If one wanted to offer a single, plausibleon-its-face explanation for these trends, it would be reasonable to argue that there has been a broad increase in market power among producers in the economy. This interest in market power extends beyond just productmarkets. Characterizing the role ofmonopsony, especially in the labor market, is an active research area as well. However, there are potential alternative explanations for many of the trends described earlier. These include a growing role for intangible capital in production, increases in product market substitutability due to the expansion of trade or decreases in consumer search costs, and other shifts in production technologies that have increased returns to scale. Moreover, a set of studies has offered evidence for these mechanisms—in case studies, certainly, but in more broadly scoped empirical settings as well. I view the goal of the Covarrubias, Gutiérrez, and Philippon paper as trying to bring together andmake sense of those many data patterns and conflicting stories. On the theory side, the paper shows how a commonly used class of models captures many of the proposed explanations for the aforementioned data trends, and it uses such models to point to possible empirical tests to discriminate among these explanations. On the empirical side, it applies these tests in an attempt to identify the most likely explanation for the data trends. (Though as I note later, the collage of