Saturday, July 14, 2018

Rip-Off Capitalism

When companies have too much power, they are able to charge consumers far more than it costs to make a product or deliver a service, generating huge profits. Companies facing fewer challengers also have less incentive to innovate or pay their employees well. 

Economists Jan De Loecker of Princteon and Jan Eeckhout of University College London are sounding the alarm particularly loudly. Last year, they reported that markups in the US, defined as the amount above cost at which a product is sold, had jumped from about 18% in 1980 to 70% in 2014

According to their analysis of the financial statements 70,000 companies across 134 countries, the rise in markups is a worldwide phenomenon. They find that while global average markups were less than 10% in 1980, they were at almost 60% in 2016. For most countries, the companies in the dataset represent more than two-thirds of that country’s economy. While the greatest increases in markups have come come in North America and Europe, every region but South America saw large rises—and that’s because markups in South America were already high.

The IMF has since weighed in, and come down on the side of De Loecker and Eeckhout. In a recent research paper, the IMF found that markups have indeed increased across the world; even when you account for marketing and management expenses, the rise has been dramatic.

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