There is compelling evidence that markups have increased over time."
However, the “greedflation” story suggests that a systematic change—unrelated to demand and marginal costs—occurred in the period following the onset of the pandemic that changed the way firms compete, allowing them to charge even higher prices (and earn higher markups). This could be, for example, that firms began colluding.
The greedflation theory suggests that large companies can leverage their outsized market power to raise prices more than what should be possible in a truly competitive economy. But in some concentrated markets, that has not happened: hospitals are highly consolidated, yet healthcare prices have risen more slowly than overall inflation throughout the past year.
In a greedflation scenario, we would expect that markets where prices increased the most also saw significant markup increases. But, recent empirical work and modeling find little relationship between industry-level changes in markups and price changes during the inflationary period.
The conversation around “greedflation” underscores the intricacy of economic phenomena and the influence of corporate decisions in the broader economy. “In my view, this suggests that there is more going on than the ‘greedflation’ story implies,” says Stillerman.