Competition is good. This might be the most basic tenet of economics. In a healthy economy, when one company is selling a product for well above what it costs to produce, other companies jump in that market to compete with them, reducing the resulting markup on goods. This is good for consumers and workers alike. Products are cheaper and more widely available, and more workers are needed to produce them.
But what happens if, for whatever reason, competition in an economy dwindles, and companies are able to ratchet up prices much higher than what it costs to produce them? It would have disastrous effects. Workers’ wages and employment rates would decline. People would switch jobs less often. Economic growth would slow.
According to economists Jan De Loecker of Princteon University and Jan Eeckhout of the University College London, this is basically describes the US economy since 1980. In a recently released paper, De Loecker and Eeckhout analyzed the balance sheets of listed companies from 1950 to 2014. (In 2014, these firms accounted for around 40% of all sales.) They found that average markups, defined as the amount above cost at which a product is sold, have shot up since 1980. The average markup was 18% in 1980, but by 2014 it was nearly 70%.