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Professor Xiaoji Lin
Professor of Finance
US Bancorp Professor in Financial Markets and Institutions
Carlson School of Management
University of Minnesota

This paper examines how technology adoption and market power jointly explain two significant macroeconomic trends in recent decades: rising markups and a declining value premium. Empirically, we show that these trends are predominantly concentrated among high-markup firms, whereas both markups and the value premium remain stable for low-markup firms. To rationalize these patterns, we develop a dynamic monopolistic competition model with endogenous technology adoption and strategic interactions. Our analysis demonstrates that the observed trends—and their crosssectional divergence between high- and low-markup firms—emerge from two critical mechanisms: (1) the rising efficiency of the aggregate technology frontier over time, and (2) firm heterogeneity in technology adoption decisions and demand elasticity. The model further highlights how these heterogeneities affect capital allocation and influence aggregate productivity growth.