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The Profit Paradox: How Thriving Firms Threaten the Future of Work
A pioneering account of the surging global tide of market power--and how it stifles workers around the world
In an era of technological progress and easy communication, it might seem reasonable to assume that the world's working people have never had it so good. But wages are stagnant and prices are rising, so that everything from a bottle of beer to a prosthetic hip costs more. Economist Jan Eeckhout shows how this is due to a small number of companies exploiting an unbridled rise in market power--the ability to set prices higher than they could in a properly functioning competitive marketplace. Drawing on his own groundbreaking research and telling the stories of common workers throughout, he demonstrates how market power has suffocated the world of work, and how, without better mechanisms to ensure competition, it could lead to disastrous market corrections and political turmoil.
The Profit Paradox describes how, over the past forty years, a handful of companies have reaped most of the rewards of technological advancements--acquiring rivals, securing huge profits, and creating brutally unequal outcomes for workers. Instead of passing on the benefits of better technologies to consumers through lower prices, these "superstar" companies leverage new technologies to charge even higher prices. The consequences are already immense, from unnecessarily high prices for virtually everything, to fewer startups that can compete, to rising inequality and stagnating wages for most workers, to severely limited social mobility.
A provocative investigation into how market power hurts average working people, The Profit Paradox also offers concrete solutions for fixing the problem and restoring a healthy economy.
In an era of technological progress and easy communication, it might seem reasonable to assume that the world's working people have never had it so good. But wages are stagnant and prices are rising, so that everything from a bottle of beer to a prosthetic hip costs more. Economist Jan Eeckhout shows how this is due to a small number of companies exploiting an unbridled rise in market power--the ability to set prices higher than they could in a properly functioning competitive marketplace. Drawing on his own groundbreaking research and telling the stories of common workers throughout, he demonstrates how market power has suffocated the world of work, and how, without better mechanisms to ensure competition, it could lead to disastrous market corrections and political turmoil.
The Profit Paradox describes how, over the past forty years, a handful of companies have reaped most of the rewards of technological advancements--acquiring rivals, securing huge profits, and creating brutally unequal outcomes for workers. Instead of passing on the benefits of better technologies to consumers through lower prices, these "superstar" companies leverage new technologies to charge even higher prices. The consequences are already immense, from unnecessarily high prices for virtually everything, to fewer startups that can compete, to rising inequality and stagnating wages for most workers, to severely limited social mobility.
A provocative investigation into how market power hurts average working people, The Profit Paradox also offers concrete solutions for fixing the problem and restoring a healthy economy.
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First published June 1, 2021
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Displaying 1 - 30 of 41 reviews
January 21, 2023
All boats sink with the rising tide.
This was such a phenomenally framed argument about the dangers of market power becoming more and more concentrated into fewer hands. The crux of this book is really simple: as market power concentrates, companies mark up their prices on a decreasing volume of units sold which has the direct effect of decreasing job growth. Market power is connected to everything bad that is happening in the global economy and in American labor. People are working harder and earning less, especially unskilled labor. The rise of start up companies is a total myth. Start up companies are way lower than they've been in the past because of worsening market power. The rise of market power causes mass mark ups and higher CEO salaries. The problem with competition is that someone wins the competition and that is what is happening in an ever financialized and globalized economy: someone is winning and sucking up all the market power.
The success of thriving firms like Amazon, Apple, Google, Facebook is not beneficial to workers. It doesn't create jobs despite many "pro-business" acolytes like to claim. These companies diminish job growth and create worse jobs with worse compensation and benefits. Profit to payroll ratio has only gotten larger and larger as market share concentrates. Incumbent companies like Facebook and old railroad companies have an enormous advantage to later competitors. The incumbents use all their start up capital and investments to build infrastructure and they don't have large competitors. The would-be start up needs the same investment for infrastructure but then they now compete with the incumbent which stifles their profitability and destroys their competitive edge. The monopolized companies continue to build moats, force hostile takeovers and levered buy outs to destroy the market and take control. All major markets have monopolized companies that destroy competition with their market power.
Higher market power sells less at higher prices which causes less employment. If this happen across the entire market, then the entire economy suffers. Higher market power means less unit production, higher prices which owners wages and destroys work. This is essence of the profit paradox. Market power contributes to the super star effect where firms vie for the same CEOs which causes sky-rocketing salaries. More market power means more outsourcing which also depresses wages. There is actually less job swapping now than in the 1990s because of a decrease in the labor market dynamism. High stock value is actually an enormous sign of non-competitive markets and a of a few big companies have market power. Lower stock prices is a sign of a healthier and more competitive market.
There is a lump of labor myth that has us believe that the labor market is static. But there is constant job turnover with creation and destruction and it all has to do with market power and how much monopsony power a company has. Free entry into the market is the driving force of a healthy competitive market.
Eeckhout offers solutions the chief of which are just using the anti-trust laws that already exist to create pro-market policy not pro-business policy. There are generally two schools of thought on monopolization, the Chicago School (Hayak, Friedman, Sowell) and Brandeisian. The former believing that government policy is responsible for monopolization. But when you look at the evidence for the last 40 years it's pretty clear that overt lack of government regulation of markets has clearly shown consolidated market power and wage stagnation. In my opinion, the time is ripe for robust social democratic policy and anti-trust enforcement that has teeth: stop mergers, stop patent evergreening and progressively tax capital accumulation. For me the solutions are clear. The political will is virtually non-existent.
This was such a phenomenally framed argument about the dangers of market power becoming more and more concentrated into fewer hands. The crux of this book is really simple: as market power concentrates, companies mark up their prices on a decreasing volume of units sold which has the direct effect of decreasing job growth. Market power is connected to everything bad that is happening in the global economy and in American labor. People are working harder and earning less, especially unskilled labor. The rise of start up companies is a total myth. Start up companies are way lower than they've been in the past because of worsening market power. The rise of market power causes mass mark ups and higher CEO salaries. The problem with competition is that someone wins the competition and that is what is happening in an ever financialized and globalized economy: someone is winning and sucking up all the market power.
The success of thriving firms like Amazon, Apple, Google, Facebook is not beneficial to workers. It doesn't create jobs despite many "pro-business" acolytes like to claim. These companies diminish job growth and create worse jobs with worse compensation and benefits. Profit to payroll ratio has only gotten larger and larger as market share concentrates. Incumbent companies like Facebook and old railroad companies have an enormous advantage to later competitors. The incumbents use all their start up capital and investments to build infrastructure and they don't have large competitors. The would-be start up needs the same investment for infrastructure but then they now compete with the incumbent which stifles their profitability and destroys their competitive edge. The monopolized companies continue to build moats, force hostile takeovers and levered buy outs to destroy the market and take control. All major markets have monopolized companies that destroy competition with their market power.
Higher market power sells less at higher prices which causes less employment. If this happen across the entire market, then the entire economy suffers. Higher market power means less unit production, higher prices which owners wages and destroys work. This is essence of the profit paradox. Market power contributes to the super star effect where firms vie for the same CEOs which causes sky-rocketing salaries. More market power means more outsourcing which also depresses wages. There is actually less job swapping now than in the 1990s because of a decrease in the labor market dynamism. High stock value is actually an enormous sign of non-competitive markets and a of a few big companies have market power. Lower stock prices is a sign of a healthier and more competitive market.
There is a lump of labor myth that has us believe that the labor market is static. But there is constant job turnover with creation and destruction and it all has to do with market power and how much monopsony power a company has. Free entry into the market is the driving force of a healthy competitive market.
Eeckhout offers solutions the chief of which are just using the anti-trust laws that already exist to create pro-market policy not pro-business policy. There are generally two schools of thought on monopolization, the Chicago School (Hayak, Friedman, Sowell) and Brandeisian. The former believing that government policy is responsible for monopolization. But when you look at the evidence for the last 40 years it's pretty clear that overt lack of government regulation of markets has clearly shown consolidated market power and wage stagnation. In my opinion, the time is ripe for robust social democratic policy and anti-trust enforcement that has teeth: stop mergers, stop patent evergreening and progressively tax capital accumulation. For me the solutions are clear. The political will is virtually non-existent.
April 17, 2022
This books deserves all the praise it got, and is an essential read for anyone who wants to have an informed opinion about current economic affairs.
It is accessible to a general audience, but is firmly grounded in state-of-the-art economic research.
My main point of criticism is that it focuses a lot on the United States, and I would have liked a more extensive discussion of the situation in the European Union.
It is accessible to a general audience, but is firmly grounded in state-of-the-art economic research.
My main point of criticism is that it focuses a lot on the United States, and I would have liked a more extensive discussion of the situation in the European Union.
September 28, 2024
Very rich, well-researched and well-argued analysis of the rise in market power across the US (and, to some extent, EU) economy since the 1990s and what this means for employees, customers, growth and innovation.
While the book lacks a bit of focus in the central chapters, it makes a convincing case for pro-market competition policies.
While the book lacks a bit of focus in the central chapters, it makes a convincing case for pro-market competition policies.
Read
June 4, 2021My interview with Professor Eeckhout about "The Profit Paradox" on The Armen Show Podcast:
http://www.armenshirvanian.com/podcas...
http://www.armenshirvanian.com/podcas...
Read
July 25, 2021The Profit Paradox … a milestone
Jan Eeckhout’s book is not the first publication about inequality in society but the difference lies in the way it treats the matter that will attract more people to read it.
A book on inequality can be focused on data, theory, or examples. The three angles of incidence have their importance and are complementary, but they are not charming the same groups in the population. Multiple examples explaining the different facets of a matter are most helpful for people looking for insight in what they experience every day but cannot put into words to defend their position: that is where The Profit Paradox is very convenient.
The word ‘inequality’ can mean many different things. To help in focusing on its meaning in the societal reality Jan Eeckhout uses the very suitable imagery of a castle with a moat around it. The moat symbolizes the difficulty, that can have many forms and dimensions, to dismantle the obstacles between the people inside the castle and round the moat.
The many examples that Eeckhout uses are taken from reality and have the important advantage of recognizability. Every reader will come across situations he or she knows at close quarters while others will widen her or his vision. The reader at no moment feels uneasy because the text never gets abstract.
Gradually the social, economic and political aspects of inequality come to light. Without having to digest masses of data or losing the thread in an abstract theory the reader gets the insight and survey needed to understand the kind of reforms that are required to obtain a better balanced economic system – in favour of those for whom labor is the main source of income – and render the societal system more democratic as needed for the welfare of themselves and their offspring.
André Bequé – Commercial- and Business Engineer
Jan Eeckhout’s book is not the first publication about inequality in society but the difference lies in the way it treats the matter that will attract more people to read it.
A book on inequality can be focused on data, theory, or examples. The three angles of incidence have their importance and are complementary, but they are not charming the same groups in the population. Multiple examples explaining the different facets of a matter are most helpful for people looking for insight in what they experience every day but cannot put into words to defend their position: that is where The Profit Paradox is very convenient.
The word ‘inequality’ can mean many different things. To help in focusing on its meaning in the societal reality Jan Eeckhout uses the very suitable imagery of a castle with a moat around it. The moat symbolizes the difficulty, that can have many forms and dimensions, to dismantle the obstacles between the people inside the castle and round the moat.
The many examples that Eeckhout uses are taken from reality and have the important advantage of recognizability. Every reader will come across situations he or she knows at close quarters while others will widen her or his vision. The reader at no moment feels uneasy because the text never gets abstract.
Gradually the social, economic and political aspects of inequality come to light. Without having to digest masses of data or losing the thread in an abstract theory the reader gets the insight and survey needed to understand the kind of reforms that are required to obtain a better balanced economic system – in favour of those for whom labor is the main source of income – and render the societal system more democratic as needed for the welfare of themselves and their offspring.
André Bequé – Commercial- and Business Engineer
April 9, 2023
A perfectly summed up explanation of why the existence of thriving firms with large profits do not necessarily results in improved salaries and more wellbeing for the vast majority of the population.
It is neither too simplistic neither too complex. A recommended read for both economists and non economists.
It is neither too simplistic neither too complex. A recommended read for both economists and non economists.
January 7, 2023
Read with Econiful’s Fall 2022 book club. Felt very “doomsday”-esque at times, but offers some glimpses of hope and solutions toward the end of the book. Really appreciated the sentiments of the epilogue, especially.
September 16, 2021
Great book! Gave a lot of insights even for a young student who does not major in economics!
May 26, 2025
This book was recommended to me by one of my professors. In fact, he is the professor who taught me Microeconomics I. Now that I’ve finished it (I left it unfinished for many years and I wanted to use it for ny project, so I read the whole book, including rereading those parts I had already read), I understand why he recommended it so much.
It’s an excellent book and it explains perfectly why competition matters and why actual untackled market power is a huge problem not only for the economy as a whole, but also for democracy.
I recommend it to literally anyone.
It’s an excellent book and it explains perfectly why competition matters and why actual untackled market power is a huge problem not only for the economy as a whole, but also for democracy.
I recommend it to literally anyone.
February 26, 2023
Heel goed boek. Enige puntjes van kritiek zijn soms de schrijffouten die volgens mij te danken zijn aan vertaling en ook het feit dat ik niet alles helemaal begreep aangezien ik een leek ben in economische termen. Het boek heeft wel genoeg diepgang en voorbeelden om het meerendeel van de complexe theoriën te verduidelijken. Er komen veel quotes terug en de schrijver gebruikt vaak eerder gebruikte ideeën in latere hoofdstukken waardoor de samenhang van heel het boek zeer goed is.
October 24, 2024
A well-argued and documented book on the role of extremely concentrated market power and how it impacts wages, innovation, and even health. The book is heavy on analysis, though with some nice memorable anecdotes to illustrate findings. The book also has some constructive solutions, though it's hard to be optimistic about them.
February 11, 2024
Good writer, surprisingly informative when re-explaining some economic concepts. Good engagement of an economist with a broader audience.
Just sad that the overall theoretical framework is dissapointing. His argument: From 1980 onwards, the competitive markets magically dissapeared. His explanations: technological progress (fuelling monopolies rather than more competition) and M&A's. No clue why those happened exactly in the '80s. Also: in his neoclassical framework, he can blame everything that is bad about contemporary capitalism on this one simple fact (market power). Stagnating wages? Market power --> higher prices --> less demand --> less production --> more wage competition --> stagnating wages. No state power, no class strugge, no crisis theory, no nothing. The only time he steps down from simple demand & supply analysis is when he observes market power. Afterwards, it's all just simple economics.
Still, for which I appreciate the book, in his first chapter he throws his major scientific contribution at your face: rising profit margins from the '80s onwards. You can hate the theoretical framework, but the fact stands and I know I'll have to start incorporating this stylized fact in analyses in the future.
Also, I'm sick and tired of George Orwell's: "the problem with competition is that someone eventually wins". You don't need to repeat it 4 times.
Just sad that the overall theoretical framework is dissapointing. His argument: From 1980 onwards, the competitive markets magically dissapeared. His explanations: technological progress (fuelling monopolies rather than more competition) and M&A's. No clue why those happened exactly in the '80s. Also: in his neoclassical framework, he can blame everything that is bad about contemporary capitalism on this one simple fact (market power). Stagnating wages? Market power --> higher prices --> less demand --> less production --> more wage competition --> stagnating wages. No state power, no class strugge, no crisis theory, no nothing. The only time he steps down from simple demand & supply analysis is when he observes market power. Afterwards, it's all just simple economics.
Still, for which I appreciate the book, in his first chapter he throws his major scientific contribution at your face: rising profit margins from the '80s onwards. You can hate the theoretical framework, but the fact stands and I know I'll have to start incorporating this stylized fact in analyses in the future.
Also, I'm sick and tired of George Orwell's: "the problem with competition is that someone eventually wins". You don't need to repeat it 4 times.
February 2, 2022
3.5
Several good thoughts diluted in hundreds of pages of tautology
Several good thoughts diluted in hundreds of pages of tautology
March 28, 2022
In The Profit Paradox, Jan Eeckhout summarizes and illustrates a swathe of recent work on the role of market power in recent secular macroeconomic trends, with the main hypothesis being that advanced economies have experienced over the past 40 years a rise in product-market monopoly power, driven by a rising share of output produced by large firms which, due to anticompetitive conduct and technological superiority, sell their products at a higher markup over cost. This depresses output and transfers rent from consumers to owners in the form of profits, and thereby reduces labor demand and the share of aggregate output going to workers. In plain language and illustrative examples, the book explains the theory, lays out the evidence, describes a host of other social ills attributable to the claimed rise in market power, and offers some policy solutions.
The topic of the book has attracted a lot of academic attention in the past few years, with the work of Eeckhout and collaborators driving a lot of the discussion. Popular treatments explaining research in the “modern macroeconomic” style reviewed in this book are remarkably thin on the ground, given the degree of interest in the substantive topics involved, such as inequality, automation and outsourcing, technology, and labor relations. As a clear and nontechnical overview of both basic concepts and recent findings in this area, it provides a window into contemporary aggregate economics largely unavailable before without delving into technical material which obscures the substantive points from the lay reader. As such, it is definitely recommended for readers who want to get a sense of how economists think about recent trends.
That said, the main focus is on the author’s own results, which are not uncontroversial, in part due to technical issues of measurement and interpretation. Having only moderate knowledge of this literature beforehand, I would like to withhold judgement on most of these. Rather than offer my opinions, for my own personal reference, I have compiled a lightly annotated bibliography of sources to review regarding the topics discussed in the book. As I haven’t read most of these, take this list and commentary as a potential starting point only.
Paper(s) on which the results are largely based
- De Loecker, Eeckhout, and Unger (2020): estimates markups (the premium of prices over marginal costs) across firms and over time, finding a rising trend, and links this to aggregate implications, including a declining labor share.
- De Loecker and Eeckhout (2021): international estimates
Evidence and additional measurements:
- Barkai (2020): aggregate accounting suggests declining labor share attributable to rise in profits, rather than payment to capital
- Baqaee and Farhi (2020): measures productivity cost of rising markups in US with input output structure, as much higher than summing over deadweight loss triangles (and also higher than the figures reported in Eeckhout’s book; as I listened to the audio book I didn’t get the reference used for that calculation)
- Edmond, Midrigan, and Xu (2018) another estimate of total costs of markups, closer to the figures Eeckhout reports. Also points out some issues in choice of weighted average.
- Eggertsson, Robbins, and Wold (2021) a stylized aggregate model suggesting rising market power story is consistent with a variety of macro trends, including falling interest rates
Competing(?) theories
- Autor et al. (2020): “superstar firms” hypothesis: rising firm productivity dispersion leads to (efficient?) concentration in large firms. In the book, this is treated less as a competing theory than an explanation for the rise of market power, as leading firms with a productivity advantage may have high markups and low prices simultaneously. As I understand it, the regulatory implications of this kind of market power differ substantially from those of increases due to changing market structure or conduct (say, rising entry costs, declining antitrust enforcement, changing consumer preferences)
- Kehrig and Vincent (2021): the typical firm appears to have a rising labor share, but growing firms experience declining labor shares, accounting on net for the declining total share. Related to discussion in book about markup rise being concentrated in certain firms?
- Hubmer and Restrepo (2021) declining costs of automation disproportionately for large firms as an explanation for above labor share fact.
- Monopsony: abundant and overwhelming evidence, especially experiments and quasiexperiments from labor economists like Arindrajit Dube and Suresh Naidu, indicates that firms do not hire labor in competitive markets, but instead pay a “markdown” due to their market power over inputs. A greater wage markdown would similarly result in declining labor share and many of the implications of a rising product markup that Eeckhout describes. He acknowledges the presence of monopsony but argues that it has not changed so dramatically over time, with the rough sketch of the reason being that widespread product market power lowers aggregate labor demand and depresses wages for all (comparable) workers, while monopsony power changes would concentrate wage declines relatively more at the larger employers. Like markups, these are hard to measure systematically, especially economy-wide and over time.
- Card et al. (2018) is an attempt at systematic cross-sectional measurement of markdowns
Measurement issues
The main empirical claims of rising market power and falling labor share are somewhat difficult to assess empirically, and some have suggested measurement issues, especially in the latter, which may affect the magnitudes.
(How much) are markups rising?
- Berry, Gaynor, and Scott Morton (2019) markup estimates and interpretation are hard due to industry-heterogeneity: discusses what industry case studies show.
- Demirer (2020) markup estimation is hard because existing methods rely on strong functional form assumptions and nobody has good instruments for variation in input use that are applicable across a wide range of industries (the standard Olley Pakes method uses timing assumptions; other methods may rely also on behavioral assumptions like cost minimization). This paper describes some of the issues, and addresses (mainly) the former, finding a bit smaller markup growth. I don’t know that there’s a one size fits all solution to the problem, but one should take any exact numbers with a grain of salt.
How much is the labor share of income falling?
- Smith et al. (2019) measuring factor shares is hard as tax law changes have affected reported classifiction of income (key words here are “S-corporation” vs “C-corporation”)
- Koh, Santaeulàlia-Llopis, and Zheng (2020) changing treatment by BEA of intangible capital mechanically accounts for some fraction of labor share fall. The interpretation of this fact seems controversial in the literature.
References
Autor, David, David Dorn, Lawrence F Katz, Christina Patterson, and John Van Reenen. 2020. “The Fall of the Labor Share and the Rise of Superstar Firms.” The Quarterly Journal of Economics 135 (2): 645–709.
Baqaee, David Rezza, and Emmanuel Farhi. 2020. “Productivity and Misallocation in General Equilibrium.” The Quarterly Journal of Economics 135 (1): 105–63.
Barkai, Simcha. 2020. “Declining Labor and Capital Shares.” The Journal of Finance 75 (5): 2421–63.
Berry, Steven, Martin Gaynor, and Fiona Scott Morton. 2019. “Do Increasing Markups Matter? Lessons from Empirical Industrial Organization.” Journal of Economic Perspectives 33 (3): 44–68.
Card, David, Ana Rute Cardoso, Joerg Heining, and Patrick Kline. 2018. “Firms and Labor Market Inequality: Evidence and Some Theory.” Journal of Labor Economics 36 (S1): S13–70.
De Loecker, Jan, and Jan Eeckhout. 2021. “Global Market Power.”
De Loecker, Jan, Jan Eeckhout, and Gabriel Unger. 2020. “The Rise of Market Power and the Macroeconomic Implications.” The Quarterly Journal of Economics 135 (2): 561–644.
Demirer, Mert. 2020. “Production Function Estimation with Factor-Augmenting Technology: An Application to Markups.”
Edmond, Chris, Virgiliu Midrigan, and Daniel Yi Xu. 2018. “How Costly Are Markups?” National Bureau of Economic Research.
Eggertsson, Gauti B, Jacob A Robbins, and Ella Getz Wold. 2021. “Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States.” Journal of Monetary Economics 124: S19–38.
Hubmer, Joachim, and Pascual Restrepo. 2021. “Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution.” National Bureau of Economic Research.
Kehrig, Matthias, and Nicolas Vincent. 2021. “The Micro-Level Anatomy of the Labor Share Decline.” The Quarterly Journal of Economics 136 (2): 1031–87.
Koh, Dongya, Raül Santaeulàlia-Llopis, and Yu Zheng. 2020. “Labor Share Decline and Intellectual Property Products Capital.” Econometrica 88 (6): 2609–28.
Smith, Matthew, Danny Yagan, Owen Zidar, and Eric Zwick. 2019. “Capitalists in the Twenty-First Century.” The Quarterly Journal of Economics 134 (4): 1675–745.
The topic of the book has attracted a lot of academic attention in the past few years, with the work of Eeckhout and collaborators driving a lot of the discussion. Popular treatments explaining research in the “modern macroeconomic” style reviewed in this book are remarkably thin on the ground, given the degree of interest in the substantive topics involved, such as inequality, automation and outsourcing, technology, and labor relations. As a clear and nontechnical overview of both basic concepts and recent findings in this area, it provides a window into contemporary aggregate economics largely unavailable before without delving into technical material which obscures the substantive points from the lay reader. As such, it is definitely recommended for readers who want to get a sense of how economists think about recent trends.
That said, the main focus is on the author’s own results, which are not uncontroversial, in part due to technical issues of measurement and interpretation. Having only moderate knowledge of this literature beforehand, I would like to withhold judgement on most of these. Rather than offer my opinions, for my own personal reference, I have compiled a lightly annotated bibliography of sources to review regarding the topics discussed in the book. As I haven’t read most of these, take this list and commentary as a potential starting point only.
Paper(s) on which the results are largely based
- De Loecker, Eeckhout, and Unger (2020): estimates markups (the premium of prices over marginal costs) across firms and over time, finding a rising trend, and links this to aggregate implications, including a declining labor share.
- De Loecker and Eeckhout (2021): international estimates
Evidence and additional measurements:
- Barkai (2020): aggregate accounting suggests declining labor share attributable to rise in profits, rather than payment to capital
- Baqaee and Farhi (2020): measures productivity cost of rising markups in US with input output structure, as much higher than summing over deadweight loss triangles (and also higher than the figures reported in Eeckhout’s book; as I listened to the audio book I didn’t get the reference used for that calculation)
- Edmond, Midrigan, and Xu (2018) another estimate of total costs of markups, closer to the figures Eeckhout reports. Also points out some issues in choice of weighted average.
- Eggertsson, Robbins, and Wold (2021) a stylized aggregate model suggesting rising market power story is consistent with a variety of macro trends, including falling interest rates
Competing(?) theories
- Autor et al. (2020): “superstar firms” hypothesis: rising firm productivity dispersion leads to (efficient?) concentration in large firms. In the book, this is treated less as a competing theory than an explanation for the rise of market power, as leading firms with a productivity advantage may have high markups and low prices simultaneously. As I understand it, the regulatory implications of this kind of market power differ substantially from those of increases due to changing market structure or conduct (say, rising entry costs, declining antitrust enforcement, changing consumer preferences)
- Kehrig and Vincent (2021): the typical firm appears to have a rising labor share, but growing firms experience declining labor shares, accounting on net for the declining total share. Related to discussion in book about markup rise being concentrated in certain firms?
- Hubmer and Restrepo (2021) declining costs of automation disproportionately for large firms as an explanation for above labor share fact.
- Monopsony: abundant and overwhelming evidence, especially experiments and quasiexperiments from labor economists like Arindrajit Dube and Suresh Naidu, indicates that firms do not hire labor in competitive markets, but instead pay a “markdown” due to their market power over inputs. A greater wage markdown would similarly result in declining labor share and many of the implications of a rising product markup that Eeckhout describes. He acknowledges the presence of monopsony but argues that it has not changed so dramatically over time, with the rough sketch of the reason being that widespread product market power lowers aggregate labor demand and depresses wages for all (comparable) workers, while monopsony power changes would concentrate wage declines relatively more at the larger employers. Like markups, these are hard to measure systematically, especially economy-wide and over time.
- Card et al. (2018) is an attempt at systematic cross-sectional measurement of markdowns
Measurement issues
The main empirical claims of rising market power and falling labor share are somewhat difficult to assess empirically, and some have suggested measurement issues, especially in the latter, which may affect the magnitudes.
(How much) are markups rising?
- Berry, Gaynor, and Scott Morton (2019) markup estimates and interpretation are hard due to industry-heterogeneity: discusses what industry case studies show.
- Demirer (2020) markup estimation is hard because existing methods rely on strong functional form assumptions and nobody has good instruments for variation in input use that are applicable across a wide range of industries (the standard Olley Pakes method uses timing assumptions; other methods may rely also on behavioral assumptions like cost minimization). This paper describes some of the issues, and addresses (mainly) the former, finding a bit smaller markup growth. I don’t know that there’s a one size fits all solution to the problem, but one should take any exact numbers with a grain of salt.
How much is the labor share of income falling?
- Smith et al. (2019) measuring factor shares is hard as tax law changes have affected reported classifiction of income (key words here are “S-corporation” vs “C-corporation”)
- Koh, Santaeulàlia-Llopis, and Zheng (2020) changing treatment by BEA of intangible capital mechanically accounts for some fraction of labor share fall. The interpretation of this fact seems controversial in the literature.
References
Autor, David, David Dorn, Lawrence F Katz, Christina Patterson, and John Van Reenen. 2020. “The Fall of the Labor Share and the Rise of Superstar Firms.” The Quarterly Journal of Economics 135 (2): 645–709.
Baqaee, David Rezza, and Emmanuel Farhi. 2020. “Productivity and Misallocation in General Equilibrium.” The Quarterly Journal of Economics 135 (1): 105–63.
Barkai, Simcha. 2020. “Declining Labor and Capital Shares.” The Journal of Finance 75 (5): 2421–63.
Berry, Steven, Martin Gaynor, and Fiona Scott Morton. 2019. “Do Increasing Markups Matter? Lessons from Empirical Industrial Organization.” Journal of Economic Perspectives 33 (3): 44–68.
Card, David, Ana Rute Cardoso, Joerg Heining, and Patrick Kline. 2018. “Firms and Labor Market Inequality: Evidence and Some Theory.” Journal of Labor Economics 36 (S1): S13–70.
De Loecker, Jan, and Jan Eeckhout. 2021. “Global Market Power.”
De Loecker, Jan, Jan Eeckhout, and Gabriel Unger. 2020. “The Rise of Market Power and the Macroeconomic Implications.” The Quarterly Journal of Economics 135 (2): 561–644.
Demirer, Mert. 2020. “Production Function Estimation with Factor-Augmenting Technology: An Application to Markups.”
Edmond, Chris, Virgiliu Midrigan, and Daniel Yi Xu. 2018. “How Costly Are Markups?” National Bureau of Economic Research.
Eggertsson, Gauti B, Jacob A Robbins, and Ella Getz Wold. 2021. “Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States.” Journal of Monetary Economics 124: S19–38.
Hubmer, Joachim, and Pascual Restrepo. 2021. “Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution.” National Bureau of Economic Research.
Kehrig, Matthias, and Nicolas Vincent. 2021. “The Micro-Level Anatomy of the Labor Share Decline.” The Quarterly Journal of Economics 136 (2): 1031–87.
Koh, Dongya, Raül Santaeulàlia-Llopis, and Yu Zheng. 2020. “Labor Share Decline and Intellectual Property Products Capital.” Econometrica 88 (6): 2609–28.
Smith, Matthew, Danny Yagan, Owen Zidar, and Eric Zwick. 2019. “Capitalists in the Twenty-First Century.” The Quarterly Journal of Economics 134 (4): 1675–745.
March 26, 2024
In this book, economist Jan Eeckhout makes the argument that large firms such as Amazon, Apple, and Google are severely damaging the economy by limiting competition in the market. He uses Warren Buffet's example of a company building a moat around itself. This "moat" can be anything from proprietary technology to mergers and acquisitions to intense lobbying. Practices such as these ultimately reduce competition which results in low wages, the stifling of innovation, the stymieing of small and medium business growth. This in turn leads to ballooning costs to consumers, exacerbates health issues, and contributes to the growth of extreme poverty.
I think it is safe to say that none of this is groundbreaking stuff. Anyone paying attention can see that the greed of these mega firms is doing considerable harm to the market, workers, and consumers. What is important is that Eeckhout spends a good deal of time breaking down the individual pieces of what is happening and explains them with ample examples. Even though it is very much an economics lesson, this book remains accessible to the general public. Readers who are more well-versed in economics might find this book to be a bit oversimplified and even repetitive at times, but I think this is important in driving his points home for non-experts.
Eeckhout also spends good amount of the text breaking down common myths about work and about the economy such as the "golden watch myth" or the "lump of labor fallacy." He also carefully explains that though things like technological advances have allowed companies like Amazon to build a moat around itself, these technological gains are a net positive for humanity. The problem is not technological advances themselves, it is who gets access to the technology that is the issue.
His proposed solutions are getting money out of politics, and broad, international cooperation by independent institutions to ensure the proper application of anti-trust regulations.
"The central thesis of The Profit Paradox is that technological innovation has a natural tendency toward accumulating wealth in few hands. New technologies favor the early adopter who can take the entire market while using the same technology to entrench power and limit competition in the market. Remember Orwell’s words: 'The trouble with competitions is that somebody wins them.'
We therefore need strong institutions and independent regulation that guarantees and protects competition. One of the biggest misperceptions is that markets are free and that competition is a natural outcome. Most markets work perfectly fine, but in the advent of new technologies, market failure leads to dominance and the accumulation of wealth. Only pro-market capitalism can attain healthy competition, which is to the benefit of all stakeholders in society, including the customers and the workers. Only then can we guarantee that what is good for business is good for workers."
Clearly, this is a herculean task and Eeckhout recognizes the unlikeliness of such changes happening. However, it is imperative that steps in this direction are taken because, as many readers can surely attest to, things are only getting worse.
I think this book is an important read about a significant problem of our time. When you read about Boeing planes falling out of the sky, this is related. When you hear about small businesses quietly disappearing, this is related. When you go to the store and are shocked by the high prices, this is related. When your medical bills are sky high, this is related. The thing is, it does not have to be like this. Highly recommended.
I think it is safe to say that none of this is groundbreaking stuff. Anyone paying attention can see that the greed of these mega firms is doing considerable harm to the market, workers, and consumers. What is important is that Eeckhout spends a good deal of time breaking down the individual pieces of what is happening and explains them with ample examples. Even though it is very much an economics lesson, this book remains accessible to the general public. Readers who are more well-versed in economics might find this book to be a bit oversimplified and even repetitive at times, but I think this is important in driving his points home for non-experts.
Eeckhout also spends good amount of the text breaking down common myths about work and about the economy such as the "golden watch myth" or the "lump of labor fallacy." He also carefully explains that though things like technological advances have allowed companies like Amazon to build a moat around itself, these technological gains are a net positive for humanity. The problem is not technological advances themselves, it is who gets access to the technology that is the issue.
His proposed solutions are getting money out of politics, and broad, international cooperation by independent institutions to ensure the proper application of anti-trust regulations.
"The central thesis of The Profit Paradox is that technological innovation has a natural tendency toward accumulating wealth in few hands. New technologies favor the early adopter who can take the entire market while using the same technology to entrench power and limit competition in the market. Remember Orwell’s words: 'The trouble with competitions is that somebody wins them.'
We therefore need strong institutions and independent regulation that guarantees and protects competition. One of the biggest misperceptions is that markets are free and that competition is a natural outcome. Most markets work perfectly fine, but in the advent of new technologies, market failure leads to dominance and the accumulation of wealth. Only pro-market capitalism can attain healthy competition, which is to the benefit of all stakeholders in society, including the customers and the workers. Only then can we guarantee that what is good for business is good for workers."
Clearly, this is a herculean task and Eeckhout recognizes the unlikeliness of such changes happening. However, it is imperative that steps in this direction are taken because, as many readers can surely attest to, things are only getting worse.
I think this book is an important read about a significant problem of our time. When you read about Boeing planes falling out of the sky, this is related. When you hear about small businesses quietly disappearing, this is related. When you go to the store and are shocked by the high prices, this is related. When your medical bills are sky high, this is related. The thing is, it does not have to be like this. Highly recommended.
March 29, 2025
لازم دیدم برای خوانندگان این کتاب چند نکته مهم اضافه کنم که همزمان به آن توجه داشته باشند:
1-
در این کتاب نقش سرمایه گذاری غیر مولد خصوصا خرید دارایی از نوع زمین و مسکن به طور کلی نادیده گرفته شده است
در یکی از مثال های درون کتاب سهم اجاره از درآمد ماهیانه تنها 40% فرض شده است در حالیکه امروز این نسبت در اکثر شهرهای جهان خصوصا شهرهای آمریکایی حداقل 70% است
2-
در مثالی از کتاب از اینکه در ابتدای قرن بیستم سهم هزینه های مصرف گرایی مربوط به مواد غذایی 40% و امروز این سهم در سال 2019 به 12% کاهش یافته است را نشانه رشد اقتصادی و پیشرفت سطح زندگی معرفی می کند
در حالیکه در همین فاصله سهم هزینه های مربوط به اجاره و یا خرید زمین و مسکن از 10% به 70% افزایش یافته است اما نویسنده ظاهرا هیچ اهمیتی به افزایش این سهم نشان نمی دهد و تنها کاهش سهم هزینه مواد غذایی را نشانه مثبت ارزیابی می کند در حالیکه دقیقا یکی از نتایج پارادوکس سود در تاثیر آن در اقتصاد مسکن می باشد
3-
در بخشی از کتاب از توهم سمپسون در برداشت از نتایج آماری اطلاعات اشاره می شود که با اینکه در آمار دیتا یک رشد صعودی مشاهده می شود اما در واقعیت به جهت تفاوت در دهک ها و دسته بندی های متفاوت نتایج عملی با آماری متفاوت است
اینجا نیز به شکلی مشابه مشاهده می شود که خود نویسنده با درنظر گرفتن سهم وزن متفاوت بین پارامترهای دخیل به نوعی دارای سو گیری در نتیجه گیری می باشند
4-
در جایی از کتاب با اشاره به تئوری کالدور سهم نیروی کار دو سوم از اعضای جامعه اشاره می شود که این رقم از دهه 1980 تا 2018 به 59% کاهش یافته که نویسنده این کاهش را به منزله کاهش نیروی کار یا افزایش بیکاری در نظر می گیرد که در عین حال که با افزایش سود شرکت های بیگ تک همراه است نتیجه را پارادوکس سود معرفی می کند
اما در این بین نقشی برای جابجایی نیروی کار به خدماتی و دورکاری و موارد مرتبط با تکنولوژی در نظر نمی گیرد و همچنین نقشی برای جهانی سازی هم در نظر گرفته نمی شود
5-
موضوع توجه به پارادوکس سود بعدا توسط اقتصاددانانی چون رایش هم به کار گرفته شده است اما مهم است که توجه داشته باشیم گرچه نرخ بهره پایین موجب تاثیر در قدرت بازار و انحصار و در نهایت کاهش انگیزه برای دریافت وام های سرمایه گذاری مولد می شود اما دقیقا همین عامل در جهت مقابل موجب به تاثیر منفی در افزایش انگیزه برای دریافت وام های رهنی جهت سرمایه گذاری غیر مولد می شود
اما نویسنده در کل کتاب با یک جهت گیری عامدانه کمترین نقش را برای تاثیر در اقتصاد مسکن در نظر می گیرد که به نظر غیر منطقی می رسد
6-
همچنین به بحث خیلی مهم نقش بازگشت خرید مجدد سهام بورسی
Buyback
برای مدیران عامل شرکت های بیگ تک هم هیچ اشاره ای نشد در حالیکه می دانیم این نقش بیشترین تاثیر در پارادوکس سود دارد
اما غیر از نکاتی که عرض شد مطالعه این کتاب را که کلیت آن به موضوع روز اقتصاد آمریکا اشاره دارد و تاثیر بسیار مهمی در اقتصاد سراسر دنیا به جای گذاشته است را توصیه می کنم هرچند باید در نظر داشت که این کتاب بیشتر با تمایلات محافظه کاری و توجیه و نه تفسیر نوشته شده است
تفسیر با توجیه متفاوت است آن هم تفسیری که حداقل درون یک موضوع تخصصی سعی داشته باشد با کمترین سوگیری به تمام جنبه های موثر در آن اشاره داشته باشد
1-
در این کتاب نقش سرمایه گذاری غیر مولد خصوصا خرید دارایی از نوع زمین و مسکن به طور کلی نادیده گرفته شده است
در یکی از مثال های درون کتاب سهم اجاره از درآمد ماهیانه تنها 40% فرض شده است در حالیکه امروز این نسبت در اکثر شهرهای جهان خصوصا شهرهای آمریکایی حداقل 70% است
2-
در مثالی از کتاب از اینکه در ابتدای قرن بیستم سهم هزینه های مصرف گرایی مربوط به مواد غذایی 40% و امروز این سهم در سال 2019 به 12% کاهش یافته است را نشانه رشد اقتصادی و پیشرفت سطح زندگی معرفی می کند
در حالیکه در همین فاصله سهم هزینه های مربوط به اجاره و یا خرید زمین و مسکن از 10% به 70% افزایش یافته است اما نویسنده ظاهرا هیچ اهمیتی به افزایش این سهم نشان نمی دهد و تنها کاهش سهم هزینه مواد غذایی را نشانه مثبت ارزیابی می کند در حالیکه دقیقا یکی از نتایج پارادوکس سود در تاثیر آن در اقتصاد مسکن می باشد
3-
در بخشی از کتاب از توهم سمپسون در برداشت از نتایج آماری اطلاعات اشاره می شود که با اینکه در آمار دیتا یک رشد صعودی مشاهده می شود اما در واقعیت به جهت تفاوت در دهک ها و دسته بندی های متفاوت نتایج عملی با آماری متفاوت است
اینجا نیز به شکلی مشابه مشاهده می شود که خود نویسنده با درنظر گرفتن سهم وزن متفاوت بین پارامترهای دخیل به نوعی دارای سو گیری در نتیجه گیری می باشند
4-
در جایی از کتاب با اشاره به تئوری کالدور سهم نیروی کار دو سوم از اعضای جامعه اشاره می شود که این رقم از دهه 1980 تا 2018 به 59% کاهش یافته که نویسنده این کاهش را به منزله کاهش نیروی کار یا افزایش بیکاری در نظر می گیرد که در عین حال که با افزایش سود شرکت های بیگ تک همراه است نتیجه را پارادوکس سود معرفی می کند
اما در این بین نقشی برای جابجایی نیروی کار به خدماتی و دورکاری و موارد مرتبط با تکنولوژی در نظر نمی گیرد و همچنین نقشی برای جهانی سازی هم در نظر گرفته نمی شود
5-
موضوع توجه به پارادوکس سود بعدا توسط اقتصاددانانی چون رایش هم به کار گرفته شده است اما مهم است که توجه داشته باشیم گرچه نرخ بهره پایین موجب تاثیر در قدرت بازار و انحصار و در نهایت کاهش انگیزه برای دریافت وام های سرمایه گذاری مولد می شود اما دقیقا همین عامل در جهت مقابل موجب به تاثیر منفی در افزایش انگیزه برای دریافت وام های رهنی جهت سرمایه گذاری غیر مولد می شود
اما نویسنده در کل کتاب با یک جهت گیری عامدانه کمترین نقش را برای تاثیر در اقتصاد مسکن در نظر می گیرد که به نظر غیر منطقی می رسد
6-
همچنین به بحث خیلی مهم نقش بازگشت خرید مجدد سهام بورسی
Buyback
برای مدیران عامل شرکت های بیگ تک هم هیچ اشاره ای نشد در حالیکه می دانیم این نقش بیشترین تاثیر در پارادوکس سود دارد
اما غیر از نکاتی که عرض شد مطالعه این کتاب را که کلیت آن به موضوع روز اقتصاد آمریکا اشاره دارد و تاثیر بسیار مهمی در اقتصاد سراسر دنیا به جای گذاشته است را توصیه می کنم هرچند باید در نظر داشت که این کتاب بیشتر با تمایلات محافظه کاری و توجیه و نه تفسیر نوشته شده است
تفسیر با توجیه متفاوت است آن هم تفسیری که حداقل درون یک موضوع تخصصی سعی داشته باشد با کمترین سوگیری به تمام جنبه های موثر در آن اشاره داشته باشد
August 1, 2022
I am an economics major so my opinion may be incorrect but it seems to me that the author manages to convey key economic principles in a very accessible format. Either I wasn't quite as smart back in class as I am now or he's demonstrating that rarest of gifts: making the complex sound simple. In any case, I'd love to get my kids to read this as a an economics primer.
As the world becomes more oligarchic (3-4 big companies in every market who together represent +80% of value sold) competitive practices do not lead to minimal pricing and maximal employment but to maximal profitability and associated employment. This means the have-nots will be ever less likely to get. Which is what we occassionally see on TV but for the moment , like the arena games in Rome, binge watching Netflix is soothing the waters. However the conditions for revolt are there for those at the bottom and while the rich are getting richer, even they are not getting as rich as they could be under a more competitive system because no one produces it all and everyone buys too expensive.
A few key take aways for me
* Theory helps us bear our ignorance of all the facts
* Cost savings are only partly and gradually transferred to customers
* Counter Intuitively average job duration is currently increasing vs 20 years ago , not decreasing
* Average expenditure for housing used to be 25% pre-tax or 33% post-tax regardless of location
* The importance of immaterial Activa increases
* Now labour = 59% of GDP, Profits 12% - in the zeventies = Labor 65% , Profits 3% => ratio profit to salaries has boomed from 2% to+30%
* Overheadcost have increased from 15% to 22% = creation moats
* Markup has gone from average 21% in the eighties to 54% now
Definitely a book for me to revisit and for those who haven't yet read it to discover.
As the world becomes more oligarchic (3-4 big companies in every market who together represent +80% of value sold) competitive practices do not lead to minimal pricing and maximal employment but to maximal profitability and associated employment. This means the have-nots will be ever less likely to get. Which is what we occassionally see on TV but for the moment , like the arena games in Rome, binge watching Netflix is soothing the waters. However the conditions for revolt are there for those at the bottom and while the rich are getting richer, even they are not getting as rich as they could be under a more competitive system because no one produces it all and everyone buys too expensive.
A few key take aways for me
* Theory helps us bear our ignorance of all the facts
* Cost savings are only partly and gradually transferred to customers
* Counter Intuitively average job duration is currently increasing vs 20 years ago , not decreasing
* Average expenditure for housing used to be 25% pre-tax or 33% post-tax regardless of location
* The importance of immaterial Activa increases
* Now labour = 59% of GDP, Profits 12% - in the zeventies = Labor 65% , Profits 3% => ratio profit to salaries has boomed from 2% to+30%
* Overheadcost have increased from 15% to 22% = creation moats
* Markup has gone from average 21% in the eighties to 54% now
Definitely a book for me to revisit and for those who haven't yet read it to discover.
September 24, 2022
The book is really worthwhile reading. It handles today’s big issue on over-profits, company merges & dominant market positions & monopolies. The negative impacts they have on competitiveness, labour market, innovation etc.
The book is an eye-opener on the various economical processes & mechanisms which drive a market. The book gives a lot of insights on economic theories & strategies.
It is not an easy-to-read book; nor is it an easy-to-understand book. There are elaborate descriptions. Sometimes the descriptive theories can result in strenuous reading for the reader. Also bit boring sometimes.
Nonetheless, I consider it a valuable book shedding some light & good insights on todays economics & market mechanisms.
The conclusion is to get more proper governmental regulations on reckless companies merges & over-profits.
This book also shows the reader the complexity of the markets’ mechanisms. No such thing as an easy solution. What is worth a highlight in this book: the writer did not limit himself to describing the problems & issues. But he concluded his book with a few chapters where he provides suggested concrete solutions to steer the market towards new horizons. That is really a big plus of this book !
The book is an eye-opener on the various economical processes & mechanisms which drive a market. The book gives a lot of insights on economic theories & strategies.
It is not an easy-to-read book; nor is it an easy-to-understand book. There are elaborate descriptions. Sometimes the descriptive theories can result in strenuous reading for the reader. Also bit boring sometimes.
Nonetheless, I consider it a valuable book shedding some light & good insights on todays economics & market mechanisms.
The conclusion is to get more proper governmental regulations on reckless companies merges & over-profits.
This book also shows the reader the complexity of the markets’ mechanisms. No such thing as an easy solution. What is worth a highlight in this book: the writer did not limit himself to describing the problems & issues. But he concluded his book with a few chapters where he provides suggested concrete solutions to steer the market towards new horizons. That is really a big plus of this book !
July 7, 2021
We all kind of know that big firms—and in particular monopolists—are a bad thing, but what exactly is the problem, is it getting worse and what can we do about it? This book answers some of these questions with a focus on the effect bigger firms (market power) has on labour markets. First, it documents how market power has been increasing over the last 30 years or so. A striking fact is that there are less start ups now than at any point in the last 30 years. Second, it documents how wages have stagnated over this period for the majority of workers (i.e. all but the very highest earners). The main part of the book explains how these two facts are linked—how a world with fewer firms that have a greater market share results in lower paid workers.
The book is easy and enjoyable to read. Although the arguments are based on rigorous academic research, the book avoids jargon and is filled with colourful anecdotes and real world examples.
Highly recommend for anyone interested in economics.
The book is easy and enjoyable to read. Although the arguments are based on rigorous academic research, the book avoids jargon and is filled with colourful anecdotes and real world examples.
Highly recommend for anyone interested in economics.
April 1, 2023
The central hypothesis here is that there are many companies that are basically monopolies who set prices higher than at optimal competitive levels which leads to fewer goods being produced and then lower levels of employment. Many of these companies are protected by large capital investments (which leads to early innovation advantages), vertical and horizontal acquisitions, lobbying activity.
He talks through numerous examples such as American flights being considerably more expensive than European flights due to fewer competitors in the US. He goes back in time and talks about how the large capital expenditures of the first railway company lead to them setting their own price as they only had to compete with horse drawn carriages.
I agreed with a lot of the concepts in the book and it wasn't all bad news. He points out that technical innovations have improved quality of life for people and is generally much better than it was 100 years ago: life expectancy, free time, food and healthcare access, etc.
He talks through numerous examples such as American flights being considerably more expensive than European flights due to fewer competitors in the US. He goes back in time and talks about how the large capital expenditures of the first railway company lead to them setting their own price as they only had to compete with horse drawn carriages.
I agreed with a lot of the concepts in the book and it wasn't all bad news. He points out that technical innovations have improved quality of life for people and is generally much better than it was 100 years ago: life expectancy, free time, food and healthcare access, etc.
This entire review has been hidden because of spoilers.
April 1, 2025
The profit paradox is a collection of counterintuitive market outcomes and a contradiction to Schumpeter's creative destruction. For reasons explained throughout the book, market dominants aren't challenged by new entrants. With increased market power, instead of creating jobs, real output (and thus jobs) and wages tend to decline. The profit paradox is therefore associated with the rising economic inequality, calling for action to protect the welfare of consumers and wage earners.
The different aspects of the profit paradox are explored through engaging chapters that require only a minimal understanding of economic theory. The book focuses primarily on the U.S. economy, where many of the most dominant firms are based (and where they ought to be regulated). Lastly, an interesting vision/suggestion is made of a new Fed-like large authority, but with a mandate for securing competitive and healthy markets.
The different aspects of the profit paradox are explored through engaging chapters that require only a minimal understanding of economic theory. The book focuses primarily on the U.S. economy, where many of the most dominant firms are based (and where they ought to be regulated). Lastly, an interesting vision/suggestion is made of a new Fed-like large authority, but with a mandate for securing competitive and healthy markets.
August 20, 2022
An illuminating insight into the role of market power in driving important macroeconomic phenomena. Ever wondered how companies like Amazon and Google alter how much you earn or pay for goods and services? Eeckhout’s wonderful presentation opens the door for readers to begin thinking about the role of companies in their everyday life.
I commend Eeckhout on displaying the findings of (often) complex economic research in a palatable and accessible way for readers.
Nevertheless, after some time the book divulges into a sermon-like chronicle attempting to point the finger at market power to account for every possible ‘troubling’ macroeconomic trend. I understand the motivation - Eeckhout is posturing market power as the antithesis to a competitive and fair economy - but it comes off as a self-serving.
Even though I don’t think it is Eeckhout’s role as a macroeconomist to suggest pragmatic policies that temper skyrocketing market power, in the ‘what can we do about it’ chapter Eeckhout departs from a robust and systematic exploration of the data to speculating and theorising about possible remedies to ameliorate rising concentration. The contrast is apparent.
I commend Eeckhout on displaying the findings of (often) complex economic research in a palatable and accessible way for readers.
Nevertheless, after some time the book divulges into a sermon-like chronicle attempting to point the finger at market power to account for every possible ‘troubling’ macroeconomic trend. I understand the motivation - Eeckhout is posturing market power as the antithesis to a competitive and fair economy - but it comes off as a self-serving.
Even though I don’t think it is Eeckhout’s role as a macroeconomist to suggest pragmatic policies that temper skyrocketing market power, in the ‘what can we do about it’ chapter Eeckhout departs from a robust and systematic exploration of the data to speculating and theorising about possible remedies to ameliorate rising concentration. The contrast is apparent.
October 28, 2021
This is an excellent book that must make you think. It's a book that must make you think about market power, the rise of inequality, and the loss of the dignity of work.
It is not an easy book to read - you must read this slowly.
The objective of a dominant firm, as he says, is not to innovate. It is to prevent others from entering the market. to quote Warren Buffet, they build walls, or moats around their business, which make it difficult for others to enter.
This then creates conditions in which a few firms dominate the landscape, and this is dangerous.
the analysis is excellent, and I like the recommendations at the end. This is a book for our times.
Read this in conjunction with "The Tyranny of Merit".
It is not an easy book to read - you must read this slowly.
The objective of a dominant firm, as he says, is not to innovate. It is to prevent others from entering the market. to quote Warren Buffet, they build walls, or moats around their business, which make it difficult for others to enter.
This then creates conditions in which a few firms dominate the landscape, and this is dangerous.
the analysis is excellent, and I like the recommendations at the end. This is a book for our times.
Read this in conjunction with "The Tyranny of Merit".
December 1, 2024
The Profit Paradox is a timely book that tackles a pressing issue. Eeckhout succeeds in showing how market power doesn’t just harm consumers—it reshapes economies, widens inequality, and even erodes democratic values. It’s a must-read for anyone who wants to understand how market power is really driving the growing gaps in our society.
The excellent explanation of theory and use of case studies makes it highly readable. However, at times, the structure felt repetitive, and the subchapter order was, for me, sometimes confusing.
That said, these are minor issues compared to the book’s overall contribution.
The excellent explanation of theory and use of case studies makes it highly readable. However, at times, the structure felt repetitive, and the subchapter order was, for me, sometimes confusing.
That said, these are minor issues compared to the book’s overall contribution.
July 31, 2021
Technology reduces the cost of production, but market power increases the ratio of price to cost. The connection between market power and falling interest rates is due to the mechanism where firms with market power invest less in capital (drop in demand) while supply in capital increases from household savings. With the demand for capital decreasing and the total supply increasing, we see a drop in the interest rate. Market power increases profits, money that will be used to buy more capital and it decreases investment and hence the demand for capital.
December 26, 2021
A comprehensive overview of why the current capitalist system is great for big companies, but not for the workforce and small companies. It looks at how market power makes big players thrive and how competition doesn't necessarily lead to better workforce policies and conditions or competitive prices.
Although technological progress improved significantly our lives, we still need to figure out a better way to regulate pricing, data collection, M&A, patents, etc., to avoid monopsonies, encourage smaller players entering the market and overall, reducing social inequalities.
Although technological progress improved significantly our lives, we still need to figure out a better way to regulate pricing, data collection, M&A, patents, etc., to avoid monopsonies, encourage smaller players entering the market and overall, reducing social inequalities.
December 2, 2022
Very accessible for economics student, but I think it would be less accessible for non-econ geeks. Great contents, the author emphasizes on the big issues regarding what have been happening to inequality, especially to workers. Why do wages stagnate while managers/CEO earn more? Why are there 3-4 big (like, really big) firms survive in the market while other firms lagging far behind?
But this book is heavily-focused on the US. I was expecting the author to give balanced explanations on the EU or even in the developing countries.
But this book is heavily-focused on the US. I was expecting the author to give balanced explanations on the EU or even in the developing countries.
January 27, 2022
How big firms, and more specifically the market power that comes with it, are bad for society as a whole.
And as corporations get bigger, and more markets are dominated by one or just a few players, this seems to be a problem that gets bigger and yields more inequality.
The book is very detailed and quite technical but the author made it work, even for me, someone without much knowledge of the intricacies of the economy.
And as corporations get bigger, and more markets are dominated by one or just a few players, this seems to be a problem that gets bigger and yields more inequality.
The book is very detailed and quite technical but the author made it work, even for me, someone without much knowledge of the intricacies of the economy.
January 15, 2023
I read this book as part of a book club for economics educators sponsored by Econiful. I found the work highly accessible and compelling. Eeckhout makes the convincing argument today's innovative technologies have enabled a few firms to concentrate market power to an alarming degree, and our existing anemic checks on their power are insufficient to address the danger this poses to free market capitalism and indeed, democracy.
May 31, 2022
Good start, but at some point in the book I think the author loses sight of the fact that market power isn't the cause of all social ills. Market power is just one of the social ills that are the result of political choices favouring business owners. Inequality may be worsened by market power, but its main cause is the political power wielded by the wealthy.
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