Discussion paper

DP16156 Monopolistic price setting behavior of IT firms

De Loecker et al. (2020) have shown that markups of publicly traded firms
have risen since 1980 in the US. They find that this rise cannot be attributed
to a particular sector. Using the same data, this paper shows that the increase
in markup is concentrated among IT firms. Firms can be classified as IT
or non-IT based on industry codes, but this method ignores a number of IT
firms outside specific IT industries, e.g. Amazon and Uber. We develop an
alternative, firm-level classification method, by applying natural language
processing (NLP) to the description of firms’ activities in Compustat. After
classifying firms as IT and non-IT, we show that markups in the period since
1980 fall apart in two episodes. In the first, from 1980 until 1996, non-IT
firms recovered from the fall of markups in the seventies. In the second
episode, since 1996, markups of IT firms exploded from 46% in 1996 to
94% in 2017, while the markup of non-IT firms was largely stagnant.

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Citation

Teulings, C and E Van 't Klooster (eds) (2021), “DP16156 Monopolistic price setting behavior of IT firms”, CEPR Press Discussion Paper No. 16156. https://cepr.org/publications/dp16156