Low Interest Rates, Market Power, and Productivity Growth

Ernest Liu, Atif Mian and Amir Sufi

No 25505, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This study provides a new theoretical result that a decline in the long-term interest rate can trigger a stronger investment response by market leaders relative to market followers, thereby leading to more concentrated markets, higher profits, and lower aggregate productivity growth. This strategic effect of lower interest rates on market concentration implies that aggregate productivity growth declines as the interest rate approaches zero. The framework is relevant for anti-trust policy in a low interest rate environment, and it provides a unified explanation for rising market concentration and falling productivity growth as interest rates in the economy have fallen to extremely low levels.

JEL-codes: E2 E22 G01 G12 (search for similar items in EconPapers)
Date: 2019-01
New Economics Papers: this item is included in nep-com, nep-fdg and nep-mac
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Citations: View citations in EconPapers (44)

Published as Ernest Liu & Atif Mian & Amir Sufi, 2022. "Low Interest Rates, Market Power, and Productivity Growth," Econometrica, Econometric Society, vol. 90(1), pages 193-221, January.

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Related works:
Journal Article: Low Interest Rates, Market Power, and Productivity Growth (2022)
Working Paper: Low Interest Rates, Market Power, and Productivity Growth (2020)
Working Paper: Low Interest Rates, Market Power, and Productivity Growth (2019)
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