That huge 'explosion' in corporate profits everyone is talking about might just be a math error caused by new technology.
March 26, 2026
Original Paper
Rising Markups or Changing Technology?
SSRN · 6469214
The Takeaway
It is commonly believed that rising prices compared to production costs prove that companies are becoming more monopolistic. This study shows that when you account for how individual factories use more expensive equipment and automation, the markups disappear, suggesting firms are becoming more capital-intensive rather than more anticompetitive.
From the abstract
Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary t