Low Interest Rates, Market Power, and Productivity Growth

Ernest Liu, Atif Mian and Amir Sufi
Additional contact information
Ernest Liu: Princeton University
Amir Sufi: University of Chicago Booth School of Business

Working Papers from Princeton University. Economics Department.

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.

Keywords: Interest rates; investment (search for similar items in EconPapers)
JEL-codes: E20 E22 G01 G12 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-ban, nep-com, nep-cwa and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Low Interest Rates, Market Power, and Productivity Growth (2019)
Working Paper: Low Interest Rates, Market Power, and Productivity Growth (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:pri:econom:2020-18

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