The IMF study confirms that in most places a small share of firms are responsible for rising markups, which have soared among the best and are flat among the rest (see chart). The 10% of firms with the highest markups are 50% more profitable than their peers, more than 30% more productive and rely more on intangibles. The fund did not find that rising markups slowed innovation, at least using the (admittedly dubious) proxy of patent registrations.
Yet market power that grows organically is still market power. The fund found evidence of some of the pernicious consequences of less competition. Higher markups are associated with less investment in physical capital—enough to have lopped a percentage point off GDP in the average advanced economy, it estimates. Top firms with higher markups pay a smaller share of the economic value they create to workers. And the fund warns that market power could yet put a brake on innovation, should incumbent firms get too cosy.
That might happen if regulators are slow to respond to structural shifts in the economy, or too lax in policing mergers that allow incumbents to pick off potential competitors. The fund found that mergers and acquisitions were, on average, followed by significantly higher markups by the firms involved. Economists are sometimes accused of having “physics envy”—that is, of coveting the precision of the hard sciences. But if economics has a law worthy of the name, it is that firms prefer to merge than to compete.