Within the past 35 years, the amount of market power firms and businesses possess has drastically increased relative to the bargaining power consumers have. Firms have roughly influenced markup prices to create a 64 percent increase since 2014. Firms have increased power to raise prices that reflect the costs of producing their goods, rather than engaging in pure capitalistic methods and basing price off of demand and supply. Normally, a firm that bases their price fluctuations heavily on cost as opposed to demand and supply would see their demand curve shift downward, or decrease. However, as firms possess significant market power they are able to cover their costs and reflect those costs in their prices. As a result this behavior impacts overall macroeconomic factors, most notably inflation. One such example of this influence on inflation is the effect oil price fluctuations have on general price levels. The significant decrease of oil prices globally decreased personal consumption expenditure, or price inflation.
The increase in market power by firms and other businesses helps to explain a lot of macroeconomic shifts we have seen in the past several decades. As economic power grows for firms and businesses, significant financial and monetary resources are shifted to these same firms. As a result this could explain the correlation with increased inequality between labor positions as more firms are rewarded. Particularly, those who reap the most benefits in a profitable firm are those that sit on the board and organize the firm's behavior, rather than the rank and file employee.
In addition, this phenomenon also helps to explain a decrease in labor participation. As firms reap more benefits and control prices, potential workers are discouraged from entering the labor market as most of the profits are filtered to the higher ups. A significant portion of the reasoning behind what gives those at the top more financial resources lies in the flawed conservative argument of trickle-down economics and as a direct result of reduced regulation and lack of behavioral oversight into how firms are managed.
Finally, the increase in firms' market share can eventually cause a slowdown in net output growth. As one could imagine, once several large firms have more discretion over the prices they can charge, the role of the consumer becomes much more minuscule than before. As such, firms who control output can limit output to reduce as much cost as they need while producing enough to generate the maximum revenue possible, which in turn maximizes overall profit gained.
As firms grow in power due to market cooperation as opposed to competition, they increase the amount of influence they possess over the market and likewise the prices they can charge. As a result this behavior has significant negative impacts on the overall economy for those who do not represent firm owners or shareholders.