**1. INTRODUCTION AND MOTIVATION**

**A key stylized fact that has emerged in recent years is that corporate market power has increased at the global level.** Drawing upon different methodologies, empirical literature produced in the past 10 years indicates that average levels of market power have been increasing across countries, in both developed and emerging economies. This trend has been measured through different metrics of market power, such as industry sales concentration ratios, firm-level profit rates, or firm-level price-cost margins. For instance, Grullon, Larkin, and Michaely (2018) show that concentration and profit rates have increased across most US industries. De Loecker, Eeckhout, and Unger (2020) estimate firm-level price–marginal cost markups in the United States and find evidence that the revenue-weighted average markup climbed from about 1.2 in 1980 to 1.6 in 2014. De Loecker and Eeckhout (2018) apply the same methodology for a sample of 134 countries and find that revenue-weighted markup has been on the rise for decades not only in the United States but also in Europe, and (to a lesser extent) in emerging economies in Latin America and Asia. Díez, Leigh, and Tambunlertchai (2018) estimate firm-level markups for publicly traded firms in 74 countries between 1980 and 2016, including both advanced and emerging market economies. They find evidence that increased markups are widespread but are more prominent among advanced economies that experienced a 39 percent increase in GDP-weighted average since 1980. More recently, IMF (2019) used firm-level data (including both publicly listed and privately held companies) across 27 countries—16 advanced and 11 emerging markets—to estimate firm-level markups between 2000 and 2015. Results indicate that the average markup for the entire sample of countries moderately increased by around 6 percent across the period studied. The rise was strongly concentrated among advanced economies, but less so among emerging economies (7.7 percent versus 1.8 percent, respectively).

**This trend has triggered an intense public debate about market power and its macroeconomic implications.** Several authors have tried to link the evidence of rising market power with recent macroeconomic trends, such as the declining share of income and sluggish investment rates.<sup>1</sup> For instance, Barkai (2020) documented a negative industry-level relationship between changes in labor share of income and changes in concentration for the US nonfinancial corporate sector during the period 1984–2014. Autor et al. (2017) find consistent evidence using firm-level data from the US Economic Census between 1982 and 2012, and show that the increase in the concentration of sales experienced in six large sectors of the economy is associated with a decrease in the labor share of value added. Still looking at US sectors but using data from publicly traded firms (through Compustat), De Loecker, Eeckhout, and Unger (2020) find evidence that an increase in markups (aggregated for the whole economy or at the firm level) is negatively correlated with labor share. Other authors focused their analyses on corporate investment rate performance and how it is related to increases in corporate market power. In this regard, Gutiérrez and Philippon (2017a, 2017b) present evidence that increasing market power—captured by rising concentration of industry sales— partly explains the low investment rates experienced by the US economy since the 2000s. IMF (2019) expands the analysis beyond the United States and runs a cross-country firm-level

> 1 In principle, several factors—besides rising market power—can contribute to these trends. Potential explanatory factors behind declining investment rates include credit constraints, weakening demand, and a shift in the composition of investment toward intangibles. See Gutiérrez and Philippon (2017a) and Crouzet and Eberly (2018) for a discussion on this matter.

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