Overview

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 and severely limited social mobility.

A provocative investigation into how market power hurts average working people, The Profit Paradox also offers concrete solutions about how to fix the problem it and restore a healthy economy.

Author

Jan Eeckhout is the ICREA Research Professor at Pompeu Fabra University in Barcelona. His work has been widely featured in the media, including the New York Times, the Wall Street Journal, the Economist, and Financial Times. He lives in Barcelona. Twitter @jan_eeckhout

Jan Eeckhout

Praise

“A vivid, comprehensive account of the causes and consequences of the recent rise of market power written by a world-renowned expert in the field, The Profit Paradox combines deep economic insight with examples from everyday life that will captivate nonspecialist audiences as much as economists.”—Pinelopi Goldberg, Yale University, former chief economist of the World Bank Group

"Provocative, ambitious, and pitch-perfect for this moment. Eeckhout shows how the rise of mega-profitable superstar corporations makes us all poorer.”—David Autor, Massachusetts Institute of Technology

“Eeckhout has done groundbreaking work on the rise in prices in the economy and the dynamics of the labor market. This book is a significant contribution to the field.”—Gabriel Zucman, coauthor of The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay

The Profit Paradox is a timely and valuable addition to the national conversation on monopolies and competition. Jan Eeckhout does a masterful job of linking long-running macroeconomic trends to the lives of individual workers and consumers. Economists have only recently understood how market power affects both. He explains how the drive for corporate profit, in combination with insufficient enforcement to prevent market power, lowers wages and working conditions and reduces opportunities for small business. The book is one of the first clear and engaging explanations of how many of the most problematic features of the modern economy are causally related.”—Fiona Scott Morton, Yale University School of Management

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Data

The data and figures referenced in the book are all available here. The replication files below contain the data sources, the code to generate the plotted data series and the code to generate the figures.

>> All replication files zip (1,5 GB)