Is the recent rise in markups in the United States and Europe caused by increased monopoly power or is it a natural consequence of structural change in the economy? I show that the rise in aggregate markups has been driven by a reallocation of market share away from goods-producing firms to services-producing firms and a faster increase of services’ markups. I develop a two-sector model of structural change to assess the sources of the rise in markups between 1980 and 2015. The two forces of structural change play opposing roles in the model. On one hand, an increase in the relative productivity of manufacturing leads to a decline of the relative price of manufactured goods. The pass-though to consumers is however smaller than one, pushing up the markups of goods-producing firms. On the other hand, increasing incomes trigger the rise of the services sector, leading to higher markups for firms in services. The higher markups result from preferences that imply the price elasticity of demand falls with income. The model matches key trends in the United States, specifically the rise of the service sector and the fall of the relative price of manufactured goods. I show that the rise in markups is in line with these observed shifts and may not necessarily reflect a decline of competition. I provide novel experimental evidence supporting the notion that the price elasticity of demand decreases with income.