Market power and productivity trends in the European economies. A macroeconomic perspective

Recent empirical investigations have documented an upward trend in profit rates, markups, and concentration over the last decades, bringing a renewed interest in market power and its causes and consequences. While most studies have focused on the US, recent works identify similar patterns in other advanced economies as well. In light of such results, a growing concern is emerging about the negative effects of declining competition. Do we observe a similar pattern in the EU countries? This paper relies on national accounting data to investigate these issues for four major EU countries: France, Germany, Italy and Spain. We find that, despite some common trends, EU countries are differentiated and followed different trends relative to the US. The upward markup trend is less pronounced than in the US and markups are positively correlated with productivity and investments, including on innovation; while imported inputs and Global Value Chains have pro-competitive effects. In the EU, despite country and sector specificities, increased concentration and market power are generally of less concern than in the US, while a larger role for the most efficient firms might increase efficiency.