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)
Feenstra et al. (Mon,) studied this question.