* * * Diagnosing and quantifying firms’ market power – the ability of firms to maintain prices above marginal cost – has long been a central topic for economists studying industrial organisation.1 On the basis of detailed firm-level data, researchers analyse the market power of firms in specific industries. For a long time, market power was of little interest to macroeconomists, including central bankers.
It first entered the field of macroeconomics as a topic of interest in the mid-1980s, but only with a narrow focus on the cyclical pattern of markups – the margin firms charge over the marginal cost of output.