Market Power, Governance Quality, and The Underground Economy: International Evidence

Market power, defined as firms' ability to set prices above marginal costs and earn economic rents, has become an increasingly prominent feature of modern economies (De Loecker and Eeckhout, 2018;De Loecker et al., 2020).A standard measure of market power is the markup, which captures the ratio of a firm's price to its marginal cost and reflects the extent to which firms can deviate from competitive pricing (Syverson, 2025).A growing body of evidence documents a substantial rise in aggregate markups across both advanced and developing economies over recent decades (De Loecker and Eeckhout, 2018).The macroeconomic consequences of rising market power have been widely studied.Existing