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Inflation in the advanced economies since the financial crisis has been surprisingly low. Yet at the same time we’re told that the US economy is losing its dynamism in recent decades. This is reflected in often massive firm concentration and rising markups.

Are the two – persistently low inflation and oligopoly structures – not in contradiction with one another?

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Interesting!

A possible way to resolve this contradiction is by taking cost reducing technologies into consideration.

Perhaps (example with made up numbers follows) in 1960 a gallon of milk cost \$1 to produce, package and market. Due to strong competition, the consumer could get this for \$1.02, meaning a markup of only 2%. Today, due to technological advancements, the same gallon of milk's production, packaging and marketing cost could be lower, say \$0.80. However perhaps there is much less competition, and the markup is now 30%. This would make the consumer price of this gallon of milk \$1.04. The price jump from \$1.02 to \$1.04 seems negligible, something most people would call low inflation. (Especially if this took 60 years.)

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Domestic oligopolies could be charging uncompetitively high prices, while inflation remains low due to importing lower-priced goods in other sectors.

For example, paying $20 to download a 0 marginal cost film (a much higher price resulting from oligopoly), while buying cheap imports (which helps to keep down price levels).

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