Aggregate Market Power: Measurement, Drivers, and Macroeconomic Effects

This survey reviews the macroeconomic literature on market power, focusing on its measurement, determinants, and macroeconomic effects. It synthesizes evidence from concentration ratios, business dynamism indicators, and markup/markdown estimates, documenting a distinct change in trends since the 1980s, especially in the United States. Aggregate patterns are characterized by stable median markups alongside rising upper‐tail dispersion and reallocation toward a small set of high‐markup firms, while developments across Europe and other economies are more heterogeneous and context‐dependent. A central theme is the unresolved tension between technology‐based explanations—emphasizing scale economies, automation, and intangibles—and competition‐based explanations stressing conduct, entry barriers, and regulation. The evidence linking market power to declining labor shares, rising profits, and increasing wage dispersion and inequality is strong, while effects on productivity, investment, and innovation are more nuanced and non‐monotonic. The survey provides a methodological assessment, reconciles competing interpretations, and discusses implications for macroeconomic and competition policy.