IMF Working Papers

This paper studies market power in Mexican industries over the period 2008-23 using establishment-level data from the Mexican Economic Census. We document a substantial increase in the average price markup over marginal costs, from 12 percent in 2008 to 27 percent in 2023. The sources of this increase vary across sectors and time: services, particularly wholesale and retail trade, account for most of the increase in markups until 2018, while manufacturing, led by transportation equipment and export-oriented industries, plays a larger role in more recent years. Rising markups in services are associated with greater local labor market concentration, suggestive of increasing monopsony power. In manufacturing, markup growth is linked to higher capital expenditure, consistent with firms sustaining larger markups to recover higher fixed costs. Moreover, rising markups in manufacturing are positively associated with total factor productivity, whereas in services they are uncorrelated with productivity. Overall, these findings suggest that while market power has increased over time, its underlying drivers have shifted from monopsonistic power in labor markets to higher fixed costs, with more favorable efficiency implications in recent years.