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Evidence of Rising Market Power and Markups Since the 1980s
Since the 1980s, firms in the US and many other countries have gained significant market power, despite the presence of competition policies (antitrust regulation). Research by economists such as Jan Eeckhout has highlighted this trend, which is demonstrated by a substantial increase in the average price markup. In the US, the average markup more than doubled between 1980 and 2016. The trend was not linear; after falling from the mid-1960s to 1980, the markup rose rapidly until 2000, stabilized for about a decade, and then began to rise again following the global financial crisis.
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Evidence of Rising Market Power and Markups Since the 1980s
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A firm that invests heavily in creating a unique brand identity and product features distinct from its rivals will likely face more pressure to lower its prices to match competitors.
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A business consultant is evaluating four different companies to determine which one possesses the greatest degree of market power. Based on the descriptions provided, which company is in the strongest position to profitably set its prices significantly above its production costs?
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Figure 2.21: Estimated Average Markup for US Firms (1955–2016)
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An economist analyzes historical pricing data for a broad cross-section of firms in a developed economy. They observe that, on average, the ratio of a product's price to its marginal cost of production was relatively low and declining in the 1970s, but began a steep and sustained increase starting around 1980. Which of the following economic phenomena does this observation most directly support?
According to economic data for the United States, the average price markup charged by firms has increased consistently and without interruption every year since 1980.
Based on economic data for US firms from the mid-1960s to 2016, arrange the following periods in the correct chronological order according to the observed trend in the average price markup.
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Match each time period with the corresponding trend observed in the average price markup for firms in the United States.
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